Bill Miller’s Income Strategy investment fund has dumped its stake in a high-flying jail operator and placed a bet on malls, despite the threat e-commerce giant Amazon.com poses on the retail industry.

“We think the narrative reflected in current prices has outpaced reality,” one of the fund’s portfolio managers, Bill Miller IV, said in a second quarter investment strategy update posted July 20. Miller manages the $116 million fund with his father, who rose to prominence through Legg Mason Capital Management before founding Miller Value Partners.

In the second quarter, it bought two real estate investment trusts for shopping malls, Washington Prime and CBL & Associates, according to the blog post. Both primarily operate in mid-size or smaller U.S. cities such as Peoria, Illinois, and Winston-Salem, N.C.

The stocks have fallen sharply over the last 12 months, down 33 percent and 27 percent, respectively. In that time, struggling retail brands have taken the SPDR S&P Retail ETF (XRT) down 8.5 percent, while Amazon shares have climbed nearly 28 percent.

“The ongoing narrative is that Amazon is fundamentally changing the retail business as we know it and killing many traditional retailers in the process, which is true,” Miller said.

But he pointed out the real estate stocks trade near a low-teens dividend yield and said the “dividends are likely safe for the foreseeable future” due to free cash flow.

“Seasoned management teams run these companies, and this is not the first time consumer preferences have changed,” he said. “The firms are using the excess cash flow above and beyond the dividends to redevelop their properties, and such investments thus far appear to generate compelling incremental rates of return.”

Washington Prime’s top tenants include L Brands and Foot Locker while CBL is trying to move from customers like Macy’s and Aeropostale to Dick’s Sporting Goods and Cheesecake Factory, according to investor presentations.

Miller said the fund bought the real estate stocks with the proceeds from the closing out of its position in private prison operator Geo Group, which he called the “most significant change” for that quarter.

Income Strategy invested in the stock shortly after it plunged nearly 40 percent in August 2016 on news the Department of Justice, under the Obama administration, would phase out the use of private contractors by federal corrections facilities. Miller said it seemed at the time the stock’s drop was likely “too far in relation to what was practical.”

The stock rebounded after Republican President Donald Trump won the election, and hit an all-time high in April. At those prices, Miller said they did not think Geo “would allow us to generate a risk-adjusted return substantially above our benchmark” and sold out.

Shares traded Wednesday nearly 22 percent below that record. The stock dropped more than 4 percent this week after quarterly revenue and sales forecasts disappointed.

Miller’s investments in shopping malls come as Warren Buffett has made similar investments.

In late June, news broke that Buffett’s Berkshire Hathaway took a 9.8 percent stake in real estate investment trust Store Capital, whose top 10 customers include AMC Entertainment, Applebee’s, Popeyes Louisiana Kitchen and Ashley Furniture, according to an investor presentation.

According to S&P Global Market Intelligence data from March, Buffett has a personal 5.89 percent stake in Seritage Growth Properties, the REIT Sears formed in 2015 as a way to generate cash from the struggling retailer’s properties.

Miller Value Partners said its Income Strategy returned a gross 24.39 percent in the 12 months ended June 30, and gained 3.64 percent in the second quarter, outperforming its benchmark Bank of America Merrill Lynch High Yield Master II Index for a fourth straight quarter.

In contrast, the S&P 500 posted a gain of 3.09 percent in the second quarter and 17.9 percent in the 12 months through June 30.

“The majority of the Strategy remains in equities, which look to be a far better value proposition for the long-term investor,” Miller said in the blog post.

Top contributors to second quarter returns for Income Strategy were positions in Valeant Pharmaceuticals and private equity firms Carlyle and Apollo Global Management. The largest detractors from quarterly gains, Miller said, were investments in Frontier Communications and Medley Capital.

— CNBC’s Lauren Thomas contributed to this report.