Fund Highlights

The Miller Income Fund – Class I – returned 8.98% in the quarter, outperforming a 5.29% gain from the ICE BofA High Yield index.

Annualized Performance as of 9/30/24 Quarter 1-Year 3-Year 5-Year 10-Year
LMCLX 8.98% 34.51% 2.81% 7.86% 5.55%
ICE BofA Merrill Lynch High Yield Master II 5.29% 15.74% 3.14% 4.58% 4.97%
Performance shown represents past performance and is no guarantee of future results. Current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so shares, when redeemed, may be worth more or less than the original cost. Total returns assume the reinvestment of all distributions at net asset value and the deduction of all Fund expenses. Total return figures are based on the NAV per share applied to shareholder subscriptions and redemptions, which may differ from the NAV per share disclosed in Fund shareholder reports. Performance would have been lower if fees had not been waived in various periods. Numbers may be the same due to rounding. YTD is calculated from January 1 of the reporting year. For the most recent month-end information, please click here. Class I Gross Expense Ratio: 1.12% / Net Expense Ratio: 0.99%. Miller Value Partners, LLC (the Adviser) has contractually agreed to waive certain fees and/or other reimburse certain expenses through 1/31/2025. Please reference the prospectus for detailed information.

Some of the top contributors included financials Western Alliance Bancorp (WAL) and Jackson Financial Inc (JXN), as both companies stand to benefit from rising markets and relative stability while trading at reasonable valuations. AT&T (T) performed admirably as the telecom giant reignited customer growth with low churn while also generating robust free cash flow that should allow the company to continue paying down debt as it nears management’s net leverage ratio target of 2.5x.

The biggest detractor was automaker Stellantis (STLA), which slashed its outlook amid growing inventory levels and increasing competition. Chord Energy (CHRD) fell in sympathy with oil prices, which dropped below $70/barrel for the first time since early January. We still like both ideas, as Stellantis trades at a forward (FY25) EV/EBITDA multiple of ~1.2x based on consensus estimates, while Chord offers a ~12.3% free cash flow yield based on 2024 consensus estimates, despite both companies maintaining fortress balance sheets and returning substantial capital to shareholders. Cannabist Co Holdings 9.50% 2/3/2026 was another big detractor, driven by thin trading in the name occurring below where pricing sources thought it might trade.

The Fund added two new holdings during the quarter. Herbalife 12.25% 4/15/2029 secured bonds yield more than 12%, which seems compelling given net leverage of 1.5x through this issue in the capital structure on FY24 EBITDA consensus estimates, along with positive free cash flow generation. We also initiated a starter position in TotalEnergies SE (TTE), one of the world’s largest oil & gas companies, which generates more revenue and a similar level of EBITDA to Chevron yet trades at a ~43% discount to Chevron on FY24 EPS estimates.

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 went 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