Bill Miller, who beat the Standard & Poor’s 500 Index for a record 15 years before an ill-timed bet on financial stocks backfired, said banks will benefit from an improving housing market.
“Right now we think because housing has done so well, the next move there is in financials,” Legg Mason Inc.’s (LM:US) Miller said in a Bloomberg Television interview with Julie Hyman that aired today. “There’s a lot of attractiveness, especially with housing getting better.”
Miller is wagering on banks in his $974 million Legg Mason Capital Management Opportunity Trust (LMOPX:US), which had 40 percent of assets in financial stocks as of Sept. 30. Banks such as Citigroup Inc. (C:US) and Bank of America Corp. (BAC:US), among the top 15 holdings in the fund, are priced attractively, Miller said in the interview. An improved housing market means banks’ mortgage origination businesses will also get better, Miller said.
U.S. home prices rose 5 percent in September from a year earlier, the biggest 12-month increase since July 2006, CoreLogic Inc., an Irvine, California-based real estate data provider, said Nov. 6.
Citigroup is “a great global franchise” and Bank of America is trading below tangible book value, Miller said. If banks grow at the same rate as gross domestic product, they’ll generate cash, which may be deployed in dividends or share buybacks, he said. The Opportunity fund also holds insurers such as Hartford Financial Services Group Inc. and mortgage real estate investment trusts.
Miller set a record for beating the S&P 500 index in his flagship Legg Mason Capital Management Value Trust (LMVTX:US) for 15 years through 2005 by picking inexpensive financial shares and out-of- favor technology companies. During the 2008 credit crisis, the fund lost 55 percent, prompting withdrawals after peaking at $21 billion. Miller stepped down from the Value Trust in April, while staying as manager of the Opportunity fund.
The Opportunity fund returned 28 percent this year through Nov. 7, surpassing 99 percent of peers, according to data compiled by Bloomberg. The fund lost 35 percent in 2011, last in its category, as Miller prematurely bet on a recovery.
To contact the reporters on this story: Alexis Leondis in New York at firstname.lastname@example.org; Julie Hyman in New York at email@example.com
To contact the editor responsible for this story: Christian Baumgaertel at firstname.lastname@example.org