Legg Mason's Bill Miller is struggling to find the ‘extraordinary' value in the US he did last year, and said equity markets could rise even higher in 2014.
A number of stocks Miller added to his Opportunity fund last year have tripled or quadrupled in value, but he does not expect to see opportunities for these kinds of returns moving in to 2014.
“A year ago, you could have bought Netflix at $60, and we did, and now it is up at $300. You cannot do that anymore,” he said.
“Overall, the market is approaching fair value for the first time in five years. It is unusual for markets to remain fair value for a long time, they usually either drop to undervaluation or become overvalued.”
However, Miller said there is potential for the US market to rise another 10% to 15% next year, provided earnings grow in the range of 6% to 12%, as forecast.
Last week, the S&P 500 broke through 1,800 in a new record high for the index, while the Dow reached a new peak above 16,000 as investors saw no sign of an end to QE.
“The market will continue moving upwards as growth accelerates, but at some point this is going to stop,” Miller said. “If the S&P 500 were to rise another 20% to 2,100, I would be getting nervous.”
Miller has named the ‘Four Horsemen’ he is backing to drive the fund’s performance next year – homebuilders, financials, airlines, and information technology.
His favourite sector is currently homebuilders, which have underperformed this year compared to the triple-digit rise seen in 2012.
Over the year to 19 November, Miller’s fund is up 74% according to FE, more than double the average return of the offshore Equity USA sector.
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