The Intellectual Investor: Income Strategy Weekly Updates

September 17, 2018

Income Strategy Update for Week Ended 9/14/18

Maiden Holdings Advances on Catalina Holdings Increased Stake While Barings Declines Despite Upgrade

Last week, the Income Strategy advanced 1.57% outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.47% gain and the S&P 500’s 1.21% rise (Exhibit 1). The strategy ended the week up 11.31% YTD, or 904 basis points ahead of the high yield index and 113 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 9/14/181

Time Period Income Strategy ML HY II S&P 500
Last Week (9/7 – 9/14) 1.57% 0.47% 1.21%
MTD 0.11% 0.34% 0.22%
QTD 0.44% 2.20% 7.33%
YTD 11.31% 2.27% 10.18%
Inception (annualized since 4/2/2009-7/31/18) 15.61% 11.62% 17.13%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Maiden Holdings (MHLD) advanced on an optimistic note from JMP Group, who believes the company is likely to benefit longer term due to their higher duration and investment leverage, which should result in larger EPS & ROE upside. They did note that near-term mark-to-market headwinds and longer lag times could exist. Further, holder Catalina Holdings purchased approximately 2.5M shares, bringing their total stake to 7.99%. Carlyle Group (CG) rose above its 100-day moving average and announced it raised $5.5Bn for its eighth and largest ever US real-estate fund. Sberbank (SBER LI) gained on news that Russian central banks will not impose stricter capital requirements amid threats of further US sanctions. Further, the US Senate Banking Committee confirmed that the most effective sanctions would focus on Russia’s sovereign-bond market as opposed to the banking sector. Sberbank also benefitted from Turkey raising rates, which boosted EM-sentiment and the ruble. CenturyLink (CTL) gained on positive remarks at the Goldman Sach’s Communacopia conference, where President and CEO Jeff Storey said the company is pleased with the integration process from the Level 3 merger and will now focus on synergy realization and integral sales strategies, while reiterating their commitment to the dividend. There was no price-changing news on Apollo Global Management (APO).

Exhibit 2: Significant Contributors to Performance,9/7/18 – 9/14/18

Name Type Return
Maiden Holdings Ltd Equity 20.1%
Carlyle Group LP Equity 5.2%
Sberbank Equity 11.7%
CenturyLink Inc Equity 3.6%
Apollo Global Management LLC Equity 2.8%

Source: Miller Value Partners

Four equities and a preferred comprised last week’s top five detractors (Exhibit 3). Preferred shares of AmTrust Financial Services (AFSI) formed a death cross, while Washington Prime Group (WPG) and New Residential Investment Corp (NRZ) fell below their 50-day moving averages. Barings BDC (BBDC) fell despite being upgraded at Raymond James from “Underperform” to “Outperform” with an $11 price target, 8.2% implied upside excluding the dividend. The analyst expects a dividend increase in the near-term, though it will likely take a few more quarters to get to normalized levels and believes that the closing of their $50M tender offer will abate negative technical trading patterns on the stock. NGL Energy Partners (NGL) announced the purchase of the ~36,000-acre Beckham Ranch and the ~87,000 acre McCloy Ranch for $93M. The acquisitions include 11.2M barrels of annual fresh water rights and have an estimated full year run-rate adjusted EBITDA contribution of $18M.

Exhibit 3: Significant Detractors from Performance, 9/7/2018 – 9/14/18

Name Type Return
AmTrust Financial Services 6.95% Preferred -4.6%
Washington Prime Group Inc Equity -2.6%
Barings BDC Equity -1.6%
New Residential Investment Corp Equity -1.4%
NGL Energy Partners LP Equity -1.7%

Source: Miller Value Partners

Did you know that we write this piece for Opportunity Equity as well? Check it out.

1The performance figures reflect the results of a representative account net of management fee and certain other expenses. For important additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2018 Miller Value Partners, LLC

Read more thoughts on:

Previous Weekly Updates