When Market Leadership Narrows, the Opportunity Set May Widen

The S&P 500’s third-quarter gain masked significant weakness beneath the surface. Just four stocks accounted for more than the index’s entire return, while much of the broader market declined.

For us, that divergence highlights an increasingly important question for investors: Where can capital find attractive returns when market leadership is concentrated and valuation expectations are stretched?

In our October MVP LIVE discussion, Bill Miller IV, CFA, CMT, and Daniel Lysik, CFA, examine the implications of higher interest rates, historic market concentration, and widening valuation disparities. They also discuss where bottom-up stock selection is uncovering opportunities, including small/mid-cap value, energy, and select businesses undergoing transformation.

David Yazdan moderates the discussion, which includes strategy updates and a live investor Q&A.

0:18 – 7:36 | David Yazdan

Strategy Update: Differentiated Exposure, Income, and Systematic Leverage

The quarter highlighted how differently actively managed portfolios can perform relative to broader market benchmarks. David reviews Q3 performance across Miller Value Partners’ strategies and the role each plays in providing differentiated market exposure.

Fund Q3 2026 Performance Highlights:

MVPA gained 2.45% in Q3, outperforming the S&P 500 Index’s 2.30% return. View current month and quarter end performance here.
Miller Income Fund (LMCLX) gained 4.37% in Q3, outperforming the High Yield Index’s -1.80% return.View current month and quarter end performance here
MVPL gained 2.97% for in Q3, outperforming the S&P 500 Index’s 2.30% return. View current month and quarter end performance here.
The team continues to see opportunities in cash-generative businesses trading below estimated intrinsic value.

7:41 – 12:29 | Bill Miller IV, CFA, CMT

Higher Rates, Market Breadth, and a More Productive Environment for Capital

The S&P 500 gained approximately 2.3% in Q3, but the underlying market told a different story. Four mega-cap stocks accounted for 4.23 percentage points of index performance, while the remaining 496 constituents collectively detracted 1.92 percentage points.

Bill challenges the conventional assumption that higher interest rates necessarily create a negative environment for equities. Instead, he argues that higher real yields and more attractive starting valuations are expanding the opportunity set for investors willing to look beyond headline index performance.

Key Takeaways:

Market concentration can obscure weakness across the broader equity market.
By quarter-end, 83% of S&P 500 constituents were at least 10% below their 52-week highs.
Higher Treasury yields do not necessarily imply weaker future equity returns.
Positive real yields provide investors with more alternatives for allocating capital.
Recent weakness in smaller companies has created what Bill views as compelling opportunities for patient, valuation-sensitive investors.

12:33 – 20:09 | Daniel Lysik, CFA

Historic Concentration and Valuation Spreads: The Case for Small-Cap Value

Dan examines the historical relationship between market concentration, valuation disparities, and subsequent equity returns. The largest companies represent an increasingly significant share of major indexes, while smaller businesses trade at substantial valuation discounts.

The investment case extends beyond relative cheapness. Dan argues that today’s concentration and valuation extremes resemble conditions that have preceded extended periods of small-cap value outperformance.

Key Takeaways:

The 30 largest U.S. stocks represented approximately 50% of total U.S. market capitalization at quarter-end, a 40-year high.
The largest 30 stocks reached approximately 7x sales, compared with prior peaks near 5x.
The combined market capitalization of the five largest S&P 500 companies approached six times that of the Russell 2000.
Historical periods of extreme valuation dispersion have preceded substantial differences in subsequent small-cap and large-cap growth returns.
Dan believes these conditions support the potential for a multi-year opportunity in smaller, lower-valuation businesses.

20:09 – 23:17 | Daniel Lysik, CFA

Beyond AI Leaders: Finding Opportunity in Business Transformation

As the AI investment cycle evolves, Dan expects investors to increasingly distinguish between companies funding the infrastructure buildout and those positioned to benefit from technology-driven productivity improvements.

He highlights Concentrix (CNXC) and Conduent (CNDT), where operational transformation, cost reductions, and improving cash generation may create opportunities not reflected in current valuations.

Key Takeaways:

AI implementation may create opportunities beyond the companies currently dominating market leadership.
Concentrix is investing in proprietary AI solutions designed to improve customer experience and operational efficiency.
Dan sees potential for improving revenue growth, margins, and free cash flow at Concentrix.
Conduent is undergoing a multi-year operational transformation, including cost reductions and asset monetization.
Both examples illustrate the team’s focus on identifying discrepancies between market expectations and underlying business economics.

23:22 – 29:30 | Bill Miller IV, CFA, CMT & David Yazdan

Fund Updates: Capital Gains, ETF Liquidity, and Portfolio Valuations

We share updates on the Funds including estimated year-end capital gains distributions, ETF trading liquidity, and the current valuations of Miller Value Partners’ portfolios.

Bill also explains changes made to MVPA’s market-making structure to improve trading execution and the investor experience.

Key Takeaways:

As of the 10/27/26, Miller Value Funds did not expect capital gains distributions for tax year 2026. The estimate remains subject to change.
Bill recommends using limit orders when buying or selling ETFs.
MVPA transitioned to a floor-based exchange structure and appointed GTS as designated market maker.
Average daily exchange trading volume does not necessarily reflect an ETF’s underlying liquidity.
Bill highlights substantial discounts to the broader market on a price-to-free-cash-flow basis across the firm’s value-oriented portfolios.

29:32 – 45:31 | Bill Miller IV, CFA, CMT, and Daniel Lysik, CFA — Moderated by David Yazdan

LIVE Q&A: Individual Holdings, Bitcoin, Energy, and Forward Returns

We answer pre-submitted and live questions, moving from individual company fundamentals to broader portfolio allocation questions. Bill and Dan discuss specific holdings, Bitcoin’s long-term investment thesis, the outlook for technology-heavy indexes, and areas where they see opportunities for earnings growth and valuation improvement.

Key Takeaways:

Portfolio holdings: Updates on Gray Media, Vroom, and USA Today, including company-specific catalysts, operational progress, and valuation considerations.
Bitcoin and tokenization: Bill discusses Bitcoin as a long-term alternative capital denominator and the firm’s interest in financial tokenization.
Nasdaq-100 outlook: Dan examines historical returns, current valuations, and the potential for lower forward returns following an extended period of strong performance.
Energy: Both Bill IV and Dan identify energy as an area where capital discipline, cash generation, and commodity economics may support attractive returns.
Housing and building products: Dan discusses JELD-WEN and opportunities associated with operational improvements and a potential recovery in demand.
International investing: Bill IV explains the firm’s preference for investing within its circle of competence.
Credit and refinancing risk: Dan discusses how capital structures, debt maturities, and normalized earnings power factor into security selection.

Summary

Our discussion returns to a central investment consideration: the market’s headline performance may be increasingly disconnected from the opportunities available beneath the surface.

Concentration remains elevated. Valuation disparities are historically wide. And higher interest rates have changed the economics of capital allocation.

For investors, the opportunity may lie less in predicting the next market leader and more in identifying businesses where current prices underestimate future cash generation, operational improvement, and intrinsic value.

We believe this makes a strong case for disciplined, bottom-up stock selection in today’s market.