Bill Miller Beats S&P 500 for Second Year With Sharp Bet on Uber

(Bloomberg) -- Bill Miller’s flagship mutual fund is poised to beat the S&P 500 index for a second straight year, aided by a timely options bet on Uber Technologies Inc.

The fund bought into Uber before California voters approved a ballot measure last month exempting gig-economy companies from classifying all drivers and couriers as employees, a change that would have increased costs.

The stock has jumped more than 50% since the end of October, a rally that gained steam after the ballot win. The Miller Opportunity Trust is up 36% this year through Tuesday, more than double the 16% return for the benchmark, including dividends.

The Baltimore-based fund bought 850,000 Uber shares in the third quarter, months prior to the vote, according to a regulatory filing. It also purchased call options that entitled the fund to buy an additional 4.2 million Uber shares at $32 each through mid-January 2022.

The fund paid $8 a share for the options. The value almost tripled to $24.75 each between the end of October and early December. They have since given up some of the gain.

Miller’s fund, with $2.24 billion in assets, has also benefited from promising news on coronavirus vaccines that has sparked a rally in some of its value stocks.

Samantha McLemore, Miller’s co-manager at Opportunity Trust, said that the firm had no special insight into whether the California initiative would pass.

The Uber investment was driven by the performance of Chief Executive Officer Dara Khosrowshahi and a sense that the company was undervalued, McLemore said in a telephone interview.

“We think Dara has done a great job on fixing the culture and moving the company toward profitability rather than growth at any cost,” McLemore said. Uber shares “weren’t reflecting the progress.”

The fund managers have employed a similar combination of shares and call options in the past to invest in Amazon.com Inc., Apple Inc. and Twitter Inc., McLemore said.

“We did this with Amazon and Apple and that worked out quite well,” she said. “Twitter didn’t work out so well.”

As the former manager of the Legg Mason Value Trust, Miller outperformed the S&P 500 for 15 straight years through 2005.

Miller Opportunity’s returns for this year rank among the top 97% of funds that follow a similar strategy, according to data compiled by Bloomberg.

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