| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 11.7% | 11.7% |
The Miller Income Strategy delivered exceptional performance in Q1 2024, returning 11.69% net versus 1.52% for the high yield benchmark, benefiting from its flexible approach to concentrate in undervalued opportunities across the capital spectrum. The strategy made strategic portfolio improvements by eliminating mistakes like Medical Properties Trust and Medifast while adding compelling new positions including Chord Energy, a Williston-basin energy consolidator with strong fundamentals and aligned management, and UGI Corp, a dividend aristocrat trading at historically low valuations despite a 6% yield and growth prospects. The portfolio also initiated a position in Lincoln National, which appears inexpensive relative to earnings power. Top contributors included MicroStrategy, which benefited from Bitcoin's 68.9% quarterly gain, and Stellantis, which reported strong financial results and announced significant shareholder returns. With many market valuations appearing frothy, the manager remains focused on concentrating in idiosyncratic, deeply discounted value ideas rather than chasing peak-valued securities, positioning the portfolio for continued outperformance.
The Miller Income Strategy focuses on flexible concentration in deeply discounted value ideas across the capital spectrum, avoiding peak-valued securities in favor of idiosyncratic opportunities with strong fundamentals trading at attractive valuations.
We are excited about the improvements we made to the portfolio over the last quarter, and we remain optimistic about the portfolio's prospects.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Apr 25 2024 | 2024 Q1 | BFH, BKE, CHRD, CTO, JXN, LNC, MED, MPW, OMF, STLA, T, UGI, VTRS, WAL | Concentration, crypto, dividends, energy, flexibility, high yield, income, value |
CHRD UGI LNC |
Miller Income Strategy delivered 11.69% returns in Q1 by concentrating in deeply discounted value opportunities while avoiding frothy market valuations. Key moves included adding energy consolidator Chord Energy and dividend aristocrat UGI Corp while eliminating mistakes like Medical Properties Trust. Strong performance from MicroStrategy and Stellantis drove outperformance versus the high yield benchmark. |
| Oct 1 2024 | 2023 Q4 | BCC, BKE, JXN, MED, OGN, RILY, WAL | dividends, high yield, rates, Regional Banks, value |
WAL BKE JXN |
Miller Income Strategy outperformed high yield benchmarks in Q4 2023 with 11.07% returns, driven by regional bank Western Alliance and dividend-paying retailer The Buckle. The rare divergence between bonds and equities suggests shifting inflation psychology. Active portfolio management enabled elimination of underperforming positions and addition of new opportunities in Boise Cascade and Gray Television debt. |
| Oct 16 2023 | 2023 Q3 | AAPL, CHS, JXN, MED, MPW, OGN, T, WAL | dividends, financials, income, rates, Telecom, value | ^FTSE | Miller Income Strategy outperformed in Q3 despite rate-driven market weakness, focusing on extreme valuations in a new capital-scarce environment. AT&T exemplifies the approach at 6x earnings with 15% FCF yield. The end of growth-at-all-costs venture capital and return of capital accountability creates compelling opportunities for value investors targeting cash-generative companies at significant discounts. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2024 Q1 |
DividendsThe portfolio added UGI Corp, a dividend aristocrat that has paid shareholders a dividend for 139 consecutive years and looks poised to boost its dividend for the 37th consecutive year. At current prices, UGI trades at its lowest price/earnings multiple in history despite sporting a 6% yield with a plan to grow earnings power at a high single-digit rate. |
Dividend Aristocrat Yield Dividend Growth Income Utilities |
EnergyThe strategy initiated a position in Chord Energy, a Williston-basin energy exploration consolidator with a thoughtful capital allocation framework, strong balance sheet and great assets that have low breakeven costs and long lives. Management is aligned with shareholders with approximately 70% of total CEO compensation at risk, and the company recently announced a merger with enerplus. |
Energy Exploration Consolidation Capital Allocation Williston Basin Oil | |
ValueThe manager emphasizes concentrating in idiosyncratic and deeply discounted value ideas rather than buying an assortment of bonds collectively trading at peak valuations. The strategy focuses on best ideas whose objective is to outperform the dear benchmark, with many current holdings trading at attractive valuations despite strong fundamentals. |
Deep Value Concentration Idiosyncratic Discount Best Ideas | |
CryptoMicroStrategy was the top contributor during the quarter as Bitcoin performed very strongly, gaining 68.9% in the period while posting a new all-time high of $73.8K. After ending 2023 with 190K bitcoin, MicroStrategy purchased another 24.2K bitcoin subsequent to reporting 4Q23 results, pushing the company's holdings to 214.2K bitcoin. |
Bitcoin MicroStrategy Cryptocurrency Digital Assets Alternative Investment | |
| 2023 Q4 |
RatesThe letter discusses the significant outperformance of long-dated US government bonds in Q4 2023, with TLT up 12.9%, marking the fifth-best calendar quarter in twenty years. This occurred without coinciding equity market drawdowns, suggesting a potential turning point in market psychology around inflation persistence. Fed officials are now discussing rate cuts and slowing balance sheet asset sales. |
Interest Rates Fed Policy Bonds Inflation Monetary Policy |
Regional BanksWestern Alliance Bancorp was the top contributor, reporting strong Q3 results with deposits rising 6.5% sequentially to $54.3B and 82% of deposits being insured and collateralized. The bank's CET1 ratio expanded to 10.6% and tangible book value per share has grown at a 19.2% CAGR since 2013, more than 6x the growth rate of peers. |
Banking Deposits Capital Ratios Credit Quality Book Value | |
DividendsThe Buckle maintained its quarterly dividend of $0.35/share and declared a special cash dividend of $2.50/share, implying a twelve-month yield of approximately 8.2%. Jackson Financial returned $123MM to shareholders via $71MM of share repurchases and $52MM in dividends, remaining on track for its 2023 capital return target of $500MM. |
Dividend Yield Special Dividends Capital Returns Shareholder Returns Cash Flow | |
| 2023 Q3 |
ValueThe fund focuses on extreme valuations whose underlying logic defies probabilistic thinking around base rates. The past decade presented headwinds for value investors as capital had little respect for value, but that game is over with bonds becoming investable again and capital actually worth something. |
Value Valuations Multiples Discount Undervalued |
RatesThe 10-year Treasury yield surged from 0.31% in Spring 2020 to 4.57% by September 2023. The Fed has become the world's biggest seller, shrinking their balance sheet by over $27B per week since March, persistently draining liquidity from the system. |
Rates Treasury Fed Liquidity Yields | |
DividendsAT&T offers a 7.5% dividend yield with just under half of free cash flow going toward the dividend, while much of the balance goes to debt paydown. The strategy focuses on income-generating securities with attractive dividend yields. |
Dividends Yield Income Cash Flow Distribution |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Apr 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | LNC | Lincoln National | Financials | Life & Health Insurance | Bull | NYSE | Annuities, Breakout, Earnings Power, financials, life insurance, Retirement Services, Value | Login |
| Apr 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | UGI | UGI Corp | Utilities | Gas Utilities | Bull | NYSE | defensive, dividend aristocrat, Gas Distribution, Income, Propane, utilities, Value | Login |
| Apr 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | CHRD | Chord Energy | Energy | Oil & Gas Exploration & Production | Bull | NASDAQ | capital allocation, consolidator, energy, Management alignment, merger, Oil & Gas Exploration, Williston Basin | Login |
| Oct 16, 2023 | Fund Letters | Miller Value Partners Income Strategy | ^FTSE | AT&T Inc. | Communication Services | Integrated Telecommunication Services | Bull | NYSE | debt reduction, defensive, dividend, Equity, Free Cash Flow, telecommunications, undervalued, Value | Login |
| Jan 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | WAL | Western Alliance Bancorp | Financials | Regional Banks | Bull | NYSE | banking, capital ratios, deposit growth, net interest margin, regional banks, tangible book value | Login |
| Jan 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | BKE | The Buckle | Consumer Discretionary | Specialty Retail | Bull | NYSE | Apparel, cash generation, dividend yield, Free Cash Flow, Special dividend, Specialty retail | Login |
| Jan 10, 2024 | Fund Letters | Miller Value Partners Income Strategy | JXN | Jackson Financial Inc | Financials | Life & Health Insurance | Bull | NYSE | Annuities, capital returns, Insurance, life insurance, RILA, share repurchases | Login |
| TICKER | COMMENTARY |
|---|---|
| CHRD | One of our newest holdings is Chord Energy (CHRD), a Williston-basin energy exploration consolidator with a thoughtful capital allocation framework, strong balance sheet and great assets that have low breakeven costs and long lives. Management is aligned with shareholders with approximately 70% of total CEO compensation at risk, and the company recently announced a merger with enerplus, which looks like a good move. |
| UGI | The portfolio also recently bought its first utility. UGI Corp. (UGI) distributes natural gas and electricity as well as liquid propane gas through its AmeriGas subsidiary, which is the largest retail propane distributor in the US. A true dividend aristocrat, UGI has paid shareholders a dividend for 139 consecutive years and looks poised to boost its dividend for the 37th consecutive year. At today's price, the stock trades at its lowest price/earnings multiple in history, despite sporting a 6% yield with a plan to grow earnings power at a high single-digit rate. |
| LNC | We also initiated a position in financial services provider Lincoln National (LNC), which just broke out to a 52-week high and looks inexpensive relative to its earnings power. |
| MPW | After Medical Properties Trust (MPW) announced yet another investment in a flailing tenant despite avowing to avoid the practice, we were forced to acknowledge our mistake and sell the stock. Tenant issues continued to plague the health care real estate investment trust (REIT) during the quarter, as management announced a $350MM write-down due to uncollected rent from its largest tenant, Steward Health Care System, while also agreeing to provide a new $60MM loan to Steward. |
| MED | We liquidated what was left of Medifast (MED) after continued struggles in the face of weight loss drugs. |
| STLA | Stellantis NV (STLA) was another top performer during the quarter. The auto manufacturer reported full-year 2023 (FY23) revenue of €189.5B ($204.5B), +5.5% year-over-year (Y/Y), ahead of consensus of €189.3B ($204.3B), and Adjusted earnings per share (EPS) of €6.42 ($6.93), +7.2% Y/Y, ahead of consensus of €5.88 ($6.34). FY23 industrial free cash flow (FCF) was €12.9B ($13.9B), or a FCF/Enterprise Value (EV) yield of 21.9%. After returning €6.6B ($7.1B) to shareholders via dividends and buybacks in 2023, the company's board of directors proposed an annual dividend of €1.55/share ($1.67), or a 5.9% yield, and management announced a new buyback program of €3.0B ($3.2B), or ~3.6% of the company's market cap. |
| JXN | Jackson Financial (JXN) reported 4Q23 adjusted operating EPS of $2.53, compared to 4Q22 EPS of $5.66, below consensus of $3.49. Registered index-linked annuity (RILA) sales rose 78.6% Y/Y to $1.0B in the quarter, while FY23 annuity sales fell -18.5% Y/Y to $12.8B. The company returned $117MM to shareholders in 4Q23, bringing FY23 shareholder capital returns to $464MM, or ~9.1% of the company's market cap. Management raised its quarterly dividend by 12.9% to $0.70/share (~4.2% yield), and established a 2024 shareholder capital return target of $600MM (11.7% of market cap) at the midpoint. |
| BKE | The Buckle Inc (BKE) reported declining comps through the quarter. The retailer generated FY23 FCF of $217.4MM, or a FCF yield of 10.6%, with no debt other than store leases. |
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