InvestmentsMay 21 2013

Legg Mason’s Bill Miller: Why I have 35% in financials

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Legg Mason’s Bill Miller has issued one of his most bullish ever market outlooks, revealing he has 35 per cent of his fund in financials in the belief the rally is set to continue.

Speaking exclusively to Investment Adviser in London this morning, the manager said he was as bullish as he has ever been since 1990 - the first of the 15 years he consecutively outperformed the S&P 500 index of US shares in his previous role as manager of the group’s giant Value Trust.

The bold call comes in spite of the fact the S&P has already rallied sharply in recent weeks, smashing through all-time highs and currently trading at 1,666 points, leading some to fear that equities are overdue a correction.

“One of the objections people have about equities is that they are at an all-time high, so must be extended, dangerous, overvalued,” he said.

“What people say is completely irrelevant, it is what they do that’s important, and they are still putting record amounts in to bond funds.

“A lot are investing in negative real returns. They are guaranteed to lose money in 10 years but are more afraid to lose money doing something else. And as long as they are prepared to lose money I’m not concerned about equities.”

The manager now runs the group’s $1.2bn Legg Mason Capital Management Opportunity Trust based in the US.

He has a top-ten weighting in Bank of America in the portfolio along with major bets on mortgage insurance stocks such as Genworth Financial and MGIC Investment.

The fund had a 34.2 per cent financials weighting as at end-April, and the manager also has 32.7 per cent of his Dublin-based $90.8m Legg Mason Capital Management Opportunity fund invested in a similar spread of financials.

“A lot of people are scared of financials,” Mr Miller said. “It’s a big bet, but it’s a very diverse sector.”

The manager handed the Value Trust to Sam Peters in 2011 after suffering large losses in 2008, amid years of consecutive underperformance, as his value style suffered amid the credit crunch.

At his peak he ran $21bn in 2007 but the trust’s assets plunged to $2.8bn in 2011 - leading him to focus on his smaller Opportunity Trust “retirement fund”.

Elsewhere, the manager also has major bets on cyclical housebuilder names, with a much lower weighting in more defensive healthcare and telecommunications stocks.

“Value investing is already in fashion but is being swamped by the safety bubble,” he added.