Saturday, August 13, 2016

Bill Miller leaves Legg Mason, buys LMM managing Legg Mason Opportunities Trust, Miller Income Opportunities Trust

  • Cyclical
  • Disconnect
  • Macro

The Opportunity Trust has been up and down in 2016: the fund rose almost 10 percent in July, but is still down 8.5 percent for the year. McLemore said the fund’s recent rebound has been fueled by a shift in investor sentiment toward cyclical stocks and away from defensive ones.

With Miller’s departure, Legg Mason said, Miller acquired Legg Mason’s stake in LMM, which provides investment management services to Legg Mason Opportunities Trust, Miller Income Opportunities Trust and related strategies.

Feb 2016

Value investor Bill Miller told CNBC on Wednesday he lost 20 percent in a month, but he thinks it's a good time to buy.
Amazon lost 18 percent in the past month and the stock is a 10 percent holding for Miller, founder, chairman, and CIO of Baltimore-based LMM. But he said it's not only Amazon. "Everything is going down."
"It took Bill Ackman and David Einhorn a year to lose 20 percent. I lost it in a month. My fund is down 20 percent in the month," Miller said on "Squawk Box," referring to the respective heads of the Pershing Square and Greenlight Capital hedge funds.
Miller, who has a strong track record, said he's been fully invested, no cash, since the 2008 financial crisis, and he's still bullish. "Lower prices mean higher future rates of return."
"The S&P [500] yields about 2.3 [percent] and dividends grew last year 9 percent," he said. "It's sort of hard to see why anyone would own a 10-year Treasury when they could own the broad market at a higher current yield."
LMM, a partially owned subsidiary of Legg Mason, has $2.1 billion of assets under management. Miller is also portfolio manager of the Legg Mason Opportunity Trust fund.
With depressed oil prices and a slowdown in China's economy, stocks logged their worst January since 2009. February has also gotten off to a volatile start — raising questions about whether the U.S. economy may go into recession.
"People think the market has some special ability to see the future. [But] the market is just people just like you and me buying and selling," said Miller. "There's disconnect between what's actually going on [economically] and what the markets are reacting to."
Take oil as an example, he said, "[historically] 85 percent of the time oil goes down, the stock market goes up. And every recession since 1970 has been at least accompanied by higher oil prices."
But in the markets now, the opposite is happening. Plunging oil prices have been driving the stock market lower, while crude gains have been pushing stocks higher.
Miller said this doesn't make any sense because "lower oil prices are unequivocally good for the U.S."

Is Bill Miller, 65, truly a great investor or does his aggressive stock-buying strategy, scooping up out-of-favor companies, merely magnify the broader market trends -- up a lot when times are good, down a lot when times are bad?Miller has always stuck to his investment decisions regardless of popular sentiment, said Raymond ‘Chip’ Mason, the Legg Mason Inc. founder who hired Miller in 1982.
“When he first bought Amazon, everyone said he was nuts,” said Mason. “But he was convinced he was right and it turns out he was.”
Miller’s shares of the ecommerce giant in the Opportunity Trust were purchased for an average of just above $20 a share. Today they trade for more than $525.
When Netflix lost 80 percent of its value between 2011 and 2012, Miller bought the stock at about $60 a share. “It is up more than 10-fold in three years,” he said.
Miller has made changes since the last recession. He is more sensitive to broad macroeconomic developments, a policy that kept him from investing in Europe during the Continent’s debt crisis in 2011. The fund also no longer buys hard-to-sell assets such as private equity stakes, said Samantha McLemore, Miller’s co-manager.Michael Mauboussin, a Credit Suisse executive who has known Miller for more than 20 years, said Miller was and still is a smart contrarian investor. The wild swings in his reputation, said Mauboussin, need to be put in perspective.

Mr Miller’s funds are no longer large enough to move the needle inside a group that manages $757bn of assets in total, across nine separately branded investment boutiques, Legg Mason has decided.
A former military intelligence officer who studied philosophy before turning to investment, Mr Miller’s former fund, the Legg Mason Value Trust, outperformed the S&P 500 for 15 straight years.

The Legg Mason Opportunity Trust — which counts Quotient Technology, an online marketing business, and the housebuilder Lennar among Mr Miller’s top picks — has proved a volatile performer since its inception in 1999. It is in the bottom 11 per cent of funds in its category over the past 10 years, according to Morningstar, in the top 1 per cent over five years, and in the bottom 3 per cent over the past year.