00:00 – 03:30

David Yazdan, Miller Value’s head of investor relations, gives a quick intro on the market and introduces what the manager’s will discuss on the call.

03:30 – 11:30

Dan Lysik provides an analysis of key market trends in 2024, focusing on momentum, concentration, and the outlook for small-cap securities.

1. Market Concentration and Magnificent 7

  • Concentration Trends: Passive indexes reached record-high concentration, with the top 10 market caps accounting for 39% of the S&P 500’s weight, compared to 26% in 2000. Forward price-to-earnings (PE) multiples for the top 10 stocks nearly doubled from 16x in 2016 to 30x in 2024.
  • Magnificent 7 Outperformance: The “Magnificent 7” (top-performing large-cap stocks) contributed nearly 60% of market returns over the past two years, with profit margins exceeding 23%. Valuations are high, with forward earnings yields under 3%, creating a growing discount relative to 10-year bond yields.

2. Long-Duration Equities and Technology Sector

  • Valuation Peaks: The percentage of S&P 500 market cap with price-to-sales ratios above 10x is nearing historical highs, primarily driven by technology stocks. The technology sector accounts for 33% of the S&P 500, with a forward PE multiple of 30x compared to a 20-year average of 18x.
  • Magnificent 7 in Context: These stocks dominate both broader indexes like the S&P 500 and growth-focused indexes like the Russell 1000 Growth Index.

3. Small-Cap Opportunities

  • Historical Underperformance: Small-cap stocks are at a 100-year low in relative rolling 10-year performance compared to large caps. In past cycles, small-cap value outperformed large-cap growth by significant margins during similar valuation extremes.
  • Improving Outlook: We believe earnings for small caps are expected to accelerate in 2025, potentially narrowing the performance gap with large caps. Tailwinds include: Anticipated interest rate cuts and yield curve steepening; Reduced regulatory burdens under the current administration; Historically low valuations and underrepresentation in market indexes (less than 4% of total equity market cap).

4. Broader Market Implications

  • High valuations and concentrated outperformance in long-duration equities create risks for valuation contractions.
  • We believe opportunities for investors lie in strategies focused on small caps and value-oriented securities, which may benefit from a broadening market and multi-year outperformance cycles.

11:30 – 15:45

David gives an update on Miller Value Fund performance in Q4 and for the year, highlighting the strong performance the funds delivered for investors.

For current month end performance, Click here for Miller Income Fund, Click here for MVPA, Click here for MVPL.

15:45 – 23:15

Bill Miller IV provides an overview of Miller Income Fund and MVPA, emphasizing the focus on small and mid-cap stocks trading at significant discounts to market multiples.

He discusses the strong performance of Bitcoin-related companies in Q4, including holdings in MicroStrategy (MSTR) and Semler Scientific (SMLR). SMLR offers a unique opportunity for value investors with additional growth potential and free cash flow yield.

Bitcoin’s growing institutional adoption and its unique qualities as a value investment due to:

  • Proof-of-work consensus mechanism.
  • Decentralized governance.
  • First-mover advantage and limited supply dynamics.

Bill gives his case for Bitcoin as a Value Asset, addressing criticisms of Bitcoin’s intrinsic value. Read Bill’s latest market letter here

23:15 – 30:20

Dan Lysik gives an update on Quad Graphics (QUAD) and Lincoln Financial (LNC)

30:20 – 48:58

The managers answer questions from the audience on flexibility in the approach, Bitcoin, BLDR, MSTR, and more.