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View the article online at http://citywire.co.uk/wealth-manager/article/a758768

Bill Miller: don’t count on a US correction yet

by Eleanor Lawrie on Jun 25, 2014 at 12:50

At the end of April, the fund had 31% in financials, almost double the 16.1% S&P 500 weighting. In an expensive market, Miller thinks housing-related stocks still look attractive and could surprise on the upside.

‘If you look at the housing market now, household worth is at an all-time high, everything is high, apart from the housebuilder stocks,’ he said.

‘There is not a single housebuilder trading at a market multiple. Their earnings estimates are for 25% a year, conservatively, way above the market average, yet we are probably six years away from a peak in housing.’

Closet indexing

Miller argued the increasingly popularity of passive management was ‘a good thing’ as many managers are ‘closet indexers’ anyway.

‘The term active management is broad and according to recent studies, around 70% of so-called active funds are actually closet indexers,’ Miller said.

‘A passive approach is a 100% guarantee of underperformance, with every tracker subtracting expenses from the market return. We see passive funds as ultimately inflexible and missing opportunities whereas portfolios with a high active share can be flexible and creative as conditions change.’

‘At the moment, the key is to avoid closet indexing. I have 90% active share, one of the biggest in the country.’

But to be truly active, he said, you have to accept you do not know what will happen next.

‘One thing that is important is not to confuse risk with uncertainty. Getting comfortable with active management means getting comfortable with uncertainty,’ he added.

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