The goal of this strategy is to provide a solution to a problem that most investors face — namely, to generate a high level of income in a low-rate world. One of the reasons that Bill Miller founded the Strategy was because he wanted a less-volatile strategy that would generate a high level of income, and about half of the assets (as of 5/30/14) are his personal funds. While we do not view the Strategy as another benchmark-centric product in an overcrowded category, we have historically seen people slot the Strategy into their “equity,” “high-yield” or “alternative” buckets. The Strategy’s volatility has historically been somewhere between that of the equity market and the high-yield index.

We calculate the Strategy’s “indicated yield” by using the most recent cash dividend or interest payment for each holding as an indication for what the position might pay over the next twelve months. We attempt to calculate the indicated yield in a conservative way by adjusting for “special” or “true-up” dividends that may not represent sustainable cash flows. We also assume no yield in cases where we have a high degree of confidence that the company will implement a significant dividend in the near future. Despite our attempted conservatism, we cannot guarantee that we will deliver the indicated yield over the coming year.

We have not historically used leverage or shorting in this strategy, although we have the ability to do so.

Within the equity space, we primarily look for ideas that have a history or stated policy of paying out the majority of their free cash flow or earnings to shareholders. Many of these names have low capital requirements, and some have limited reinvestment opportunities (but they accept that fact). We typically look for fixed income and preferred ideas that have an implied rate of return above that of the high-yield index.

We get our ideas from a wide variety of sources — systematic market screens, new offerings, corporate actions, dividend changes, news publications, sell-side research and conflicting market signals.

While over half of the Strategy is in “financials (as of 9/30/14),” it is important to note that the financial universe is a very broad one whose constituents’ cash flows are not necessarily correlated. We think carefully about fundamental cash flow drivers and do not believe that the Strategy’s financials are all likely to move in unison. Even a relatively narrow category, such as “mortgage REITs” can have a diverse set of holdings. For instance, a commercial mortgage REIT, which owns commercial mortgages that pay a higher level of interest as rates rise, may perform well in the face of rising rates, while an agency mortgage REIT whose borrowing costs are tied to the same interest rate index may not perform as well in such an environment.