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Bill Miller: don’t count on a US correction yet
by Eleanor Lawrie on Jun 25, 2014 at 12:50
Bill Miller (pictured) has dismissed fears of a correction, and has placed his biggest bet on housebuilders, even as negative arguments stack up against the sector.
Miller, the former manager of the flagship Legg Mason Capital Management (LMCM) Value trust famously beat the S&P 500 index 15 years in a row until 2006, when he was heavily weighted to financials going into the credit crunch. The fund lagged the index in five out of the subsequent six years, including losing 55% in 2008, and in 2011 Miller handed over management of the fund, which was then $2.8 billion in size, to co-manager Sam Peters.
Despite this experience, Miller who remains chairman and chief investment officer of LMCM and portfolio manager of the smaller Opportunity Trust and Income Opportunities strategies, cautioned investors against calling the top of the market too early this time around.
‘People say we are in a five-year bull market and are due for a correction, but bull markets do not die of old age. The biggest bull market we have ever seen was 17 years, but not many people made money off of that,’ he said.
Miller argued funds like his, which are actively managed, can exploit this herd-like behavioural trend to make returns.
‘Behaviour is the most enduring advantage for an active manager. There is data on how large groups of people behave, they can’t help themselves, they are built in a certain way,’ he said.
‘Housing in the US is an example. The longer house prices went up, the greater probability they placed on markets continuing to go up.’
The single largest bet in the Opportunity fund is his exposure to the recovery in the US housing market, via housebuilders themselves and also indirectly through financials, which are benefiting from increased mortgage financing and loans.
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