Fund Highlights
The Miller Value Partners Appreciation (MVPA) fund returned 7.60% (market price) during the quarter, outperforming the S&P 500’s gain of 5.89%.
| Annualized Performance as of 9/30/24 | Quarter | Since Inception (1/30/24) |
| Fund NAV | 6.97% | 29.49% |
| Market Price | 7.60% | 30.27% |
MicroStrategy (MSTR) was the top performer during the third quarter, as the company continued to execute its accretive Bitcoin acquisition strategy, despite a choppy quarter overall for Bitcoin. Maplebear (CART), which does business as InstaCart, shined in the quarter, as the platform showed strong transaction volume growth, translating to strong margin expansion; shares still seem inexpensiveat a forward (FY24) EV/EBITDA multiple of ~10.9x. Centene (CNC) and MasterBrand (MBC) leveraged their strong market positions to navigate through challenging headwinds in their respective industries, and both still seem undervaluedat EV/EBITDA (FY24) multiples of less than 8x, which is a 50% discount to the S&P 500.
We cut the weights in all of our top detractors during the quarter to add to existing names and initiate positions in more compelling ideas. PubMatic (PUBM) was the top detractor in the quarter as management’s guidance suggested that EBITDA might not be scaling as impressively as we originally thought. As we pointed out for the Income Fund’s analysis, Stellantis (STLA) and Chord Energy (CHRD) struggled in the quarter and still seem inexpensive. Atkore (ATKR) was another top detractor, as management warned of a deteriorating outlook for their electrical components business that could continue into next year, missing already low expectations from the market.
We initiated two new positions in the quarter, PayPal Holdings (PYPL) and Citi Trends (CTRN). PayPal is a global payment processing leader with a new management team focused on reigniting growth via innovative new product launches; it is a high-quality business trading at a valuation well below its historical norms. Citi Trends is a small-cap retailer with a highly-aligned management team trading at a significant discount to our intrinsic value.
Market Comments
The third quarter of 2024 was a strong one across markets, with a tailwind coming from ongoing central bank easing. In early September, the European Central Bank cut its target rate for the second time in just over three months. Less than a week later, the US’s Federal Open Market Committee lowered the target interest rate by half a percent, marking the first rate cut since the COVID crisis. The following week, the People’s Bank of China unleashed its biggest stimulus since the global financial crisis, including loan programs along with lower rates and banking reserve requirements. The move helped propel the MSCI China Index almost 40% higher in just one month after it had fallen by over 60% during the preceding three years. Bonds and stocks in the US also had a good quarter, with the Bloomberg US Aggregate Index advancing 5.20%, the second-best quarter for bonds in 29 years; meanwhile the S&P 500 advanced by an above-average 5.53%. Further, the stock market (S&P 500) is up more through the first three quarters of 2024 than in any year since 1997.
This is all especially notable in the context of discussion about whether the Fed will be able to slow inflation without crashing the economy. In our letter titled, “Parsing Through a Solid Backdrop for Equities,” published at the turn of this year, we noted that a rare gangbuster Q4 ’23 for both long bonds and equities likely implied growing investor confidence that inflation is under control. That still appears true today in light of the markets’ most recent quarter as well as the market-implied inflation rate over the coming two years falling from 2.11% at the start of Q3 ’24 to a below-target 1.77% at quarter-end.
Avoiding market exposure while predicting a recession is a bad idea, as historically, the economy has tended to grow most of the time, and the market has gone up most of the time. Further, the market’s collective wisdom will sniff out weakness and the eventual rebound ahead of most individual actors. In “Who’s Afraid of an Inverted Yield Curve Anyway” we highlighted that concerned curve watchers were failing to account for the limited sample size of inversions as well as the unique economic context.
Not only has the yield curve since uninverted without an interruption to growth, but all economic indicators are flashing green today — unemployment is low and just fell, inflation is approaching 2%, central banks are easing, and the market keeps notching all-time highs. This makes writing market letters easy, as we continue to think the path of least resistance for the market is higher, though some parts of the market look better than others. In our previous market letter, “Big Cap Stocks Party Like It’s 1999,” we noted that large cap stocks appeared extended relative to small cap stocks, which proved prescient, last quarter at least – the S&P Small Cap 600 Index was up 10.11%, nearly double the 5.13% generated by the large cap S&P 100, though we still think some smaller cap stocks present better values than many larger cap stocks.
Of course, none of this changes our approach. We look to own undervalued ideas that we believe can appreciate at a faster rate than our benchmark. As always, we remain the largest investors in our funds and appreciate the partnership.
Bill Miller IV, CFA, CMT
October 9, 2024