July 3, 2017

Income Strategy Update for Week Ended 6/30/17

Fifth Street Finance Advances on Buyout Reports While Detractors See Light News

Last week, the Income Strategy gained 0.95%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.26% advance and the S&P 500’s -0.58% loss (Exhibit 1). The strategy ended the week up 11.03% YTD, or 615 basis points ahead of the high yield index and 169 basis point ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/30/171

Time Period Income Opportunity ML HY II S&P 500
Last Week (6/23 – 6/30) 0.95% 0.26% -0.58%
MTD 3.89% 0.07% 0.62%
QTD 3.13% 2.11% 3.09%
YTD 11.03% 4.88% 9.34%
Inception (annualized since 4/2/2009) 15.64% 12.63% 16.12%

Source: Bloomberg, Miller Value Partners

Four equities and a preferred comprised this week’s top contributors (Exhibit 2). Business development company Fifth Street Finance (FSC) shot above closely watched technical levels on news that Oaktree Capital Group (OAK) was nearing a purchase of the firm’s manager, Fifth Street Asset Management (FSAM) for $350M. Seaspan (SSW) advanced above its 100-day moving average. BGC Partners (BGCP) rose after management announced that they expect 2Q revenue to come in toward the high end of prior guidance and for pretax distributable earnings to be north of the mid-point range. There was no price-changing news for Carlyle Group (CG) or William Lyon Homes (WLH).

Exhibit 2: Significant Contributors to Performance, 6/23/17 – 6/30/17

Name Type Return
Fifth Street Finance Equity 23.4%
Seaspan Corp. Equity 15.2%
BGC Partners Equity 6.3%
Carlyle Group Equity 2.1%
William Lyon Homes 6.5% Preferred 2.7%

Source: Miller Value Partners

Five equities comprised this week’s top five detractors (Exhibit 3). Shares of Apollo Global Management (APO), New Residential Investment (NRZ), and Arlington Asset Investment (AI) all fell below closely watched technical levels. In addition, 10Yr Treasuries were up nearly 17bps which appeared to weigh on Mortgage REITs. There was no company specific news on Chimera Investment (CIM) or Colony NorthStar (CLNS).

Exhibit 3: Significant Detractors from Performance, 6/23/17 – 6/30/17

Name Type Return
Apollo Global Management Equity -3.1%
Chimera Investment Corp. Equity -3.1%
New Residential Investment Corp. Equity -3.2%
Arlington Asset Investment Corp. Equity -4.2%
Colony NorthStar Equity -1.0%

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 deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule) 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.

©2017 Miller Value Partners (includes LMM LLC and Miller Value Partners, LLC)

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