LNC - Miller Value Partners Deep Value Strategy Q1 2024 Letter

2024-04-12 10:55:00 ET

Summary

• Miller Value Partners is a value investor. It values businesses, and not just stocks, and invests in them for the long term.
• For the first quarter, the Deep Value Select strategy was up 1.78% (net of fees), behind the S&P 1500 Value Index which was up 7.59% and ahead of the S&P 600 Value Index, which was slightly negative.
• We believe as earnings normalize and free cash flow materially increases over the coming years, attractive valuation expansion will be supported.

There's More "Value" In Active Than Passive!

Equity market strength continued in early 2024. Coming off a strong 2023, the S&P 500 ( SP500 , SPX ) gained over 10% in the first quarter. While historically the market has been strong during an election year, the pace of the strength has been higher than the historical average. There were similar themes to market leadership, as mega-caps and longer duration equities outperformed with greater strength in the first 2 months. In our Q4 letter " A Broadening Market Favors Value ," we highlighted how longer duration equities were benefitting from aggressive market expectations for six interest rate cuts during 2024. Equity valuations expanded in the back half of 2023, and continued during Q1. The forward price-to-earnings (P/E) multiple for the five largest S&P 500 holdings increased to 32.5x, a 3% earnings yield, much lower than the current 5%+ "risk-free" money market yield. The higher concentration in longer duration equities in the S&P 500 also lifted the overall market valuation, which is now above a 20x forward P/E multiple. To further highlight the move up in mega-cap valuations over the past couple of years, the top five combined market cap is now 3.3x the size of the entire Russel 2000 Index. That is more than two times the level in 1999-2000 time-period!...

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