A quarter of the incremental earnings generated by the S&P 500 index in 2011 will come from just four financial companies, says Bill Miller, the chairman and chief investment officer of Legg Mason Capital Management (LMCM).
The four stocks are all banks: Bank of America, Citigroup, JP Morgan and Wells Fargo.
Miller adds that American financial stocks are also predicted to have the fastest earnings and dividend growth in 2011, explaining why he is heavily overweight in the sector in the LMCM Value Trust and the Opportunity Trust. (article continues below)
Miller is also overweight in technology and healthcare. He says that alongside financials they are the cheapest sectors in the market on valuations.
Areas where Miller is underweight in his Value and Opportunity portfolios are materials, industrials, energy and consumer staples. “All these sectors are attractive on an absolute basis, it is just they are not as attractive as some of the other sectors,” he says.
Miller predicts the American stockmarket could rise by up to 15% in the coming year.
Meanwhile, he says, the attention given to a second round of quantitative easing in America is “far greater than it warrants”.
Miller outperformed the S&P 500 for 15 consecutive years before the financial crisis, but since the crisis began his relative returns have been mixed.
According to Financial Express, his US Equity Oeic fell by 42% over the three years to November 18, compared with a decline of 14% in the S&P 500, in dollar terms.