January 27, 2020

Income Strategy Update for Week Ended 1/24/20

Alternative Asset Managers Continue Their Advance While Energy Related Securities Fall with Oil

Last week, the Income Strategy declined -1.75%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.42% fall and the S&P 500’s -1.01% loss. (Exhibit 1). The strategy ended the week up 1.20% YTD, or 87 basis points ahead of the high yield index and 90 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 1/24/201

Time Period Income Strategy ML HY II S&P 500
Last Week (1/17 – 1/24) -1.75% -0.42% -1.01%
MTD 1.20% 0.33% 2.10%
QTD 1.20% 0.33% 2.10%
YTD 1.20% 0.33% 2.10%
Inception (annualized since 4/2/2009) 13.95% 11.02% 16.41%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Shares of alternative asset managers Carlyle Group (CG), Sculptor Capital Management (SCU), and Apollo Global Management (APO) rose despite volatility in the broad equity market. Morgan Stanley remained positive on the group ahead of earnings, particularly Carlyle and Apollo, noting upcoming index inclusion catalysts could support technical buying over the next several months. Further, Citi remained bullish on Sculptor and sees the potential for a “double” driven by further franchise de-risking, as well as fee-related and distributable earnings growth. Debt of Bed Bath & Beyond (BBBY) rose as Odeon Capital initiated the equity with a “Buy” rating and $24 price target, 48% implied upside. Morningstar maintained their $18 price target on CenturyLink (CTL), 24% implied upside excluding the 6.8% dividend yield.

Exhibit 2: Significant Contributors to Performance, 1/17/20 – 1/24/20

Name Type Return
Carlyle Group Inc Equity 1.3%
Sculptor Capital Management Equity 4.7%
Apollo Global Management Equity 1.3%
Bed Bath & Beyond 5.165 08/44 Bond 1.9%
CenturyLink Inc Equity 4.6%

Source: Miller Value Partners

Four equities and a bond also comprised last week’s top five detractors (Exhibit 3). Energy-related securities, including NGL Energy Partners (NGL) stock and the bonds of Chaparral Energy (CHAP), fell with oil prices as the Coronavirus raised fears of slowing oil demand. The outbreak also weighed on cyclical names, including specialty chemicals maker Chemours (CC) and specialty retailer Abercrombie & Fitch (ANF). Stifel downgraded Seaspan (SSW) to “Sell” but raised their price target to $10.50, 14% implied downside modestly offset by the 4.1% dividend yield, citing valuation following the 78% rally since the beginning of 2019.

Exhibit 3: Significant Detractors from Performance, 1/17/20 – 1/24/20

Name Type Return
NGL Energy Partners LP Equity -10.7%
The Chemours Co Equity -10.6%
Seaspan Corp Equity -12.6%
Abercrombie & Fitch Co. Equity -5.7%
Chaparral Energy 8.75 7/23 Bond -10.7%

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 fees 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.

©2019 Miller Value Partners, LLC

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