January 6, 2020

Income Strategy Update for Week Ended 1/3/20

Energy Names Rise with Oil Prices Following Iran Attacks While Alternative Asset Managers Fall with the Broad Equity Market

Last week, the Income Strategy advanced 0.61%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.23% gain and the S&P 500’s -0.12% decline. (Exhibit 1). The strategy ended the week down -0.24% YTD, or 45 basis points behind the high yield index and 39 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 1/3/201

Time Period Income Strategy ML HY II S&P 500
Last Week (12/27 – 1/3) 0.61% 0.23% -0.12%
MTD -0.24% 0.21% 0.15%
QTD -0.24% 0.21% 0.15%
YTD -0.24% 0.21% 0.15%
Inception (annualized since 4/2/2009) 13.88% 11.08% 16.30%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors (Exhibit 2). Energy-related securities, including Energy Transfer (ET) stock and the bonds of Chaparral Energy (CHAP), rose as oil surged following the killing of Iranian General Qassem Soleimani, further escalating tensions in the Middle East. Debt of Alliance Resource Partners (ARLP) gained as coal miners, one of 2019’s laggards, caught a bid to start the new year. British American Tobacco (BATS LN) advanced after the US FDA issued a temporary ban on vaping products that will effectively restrict all flavors with the exception of tobacco and menthol. There was no price-changing news on Quad Graphics (QUAD).

Exhibit 2: Significant Contributors to Performance, 12/27/19 – 1/3/20

Name Type Return
Quad Graphics Equity 10.0%
Chaparral Energy 8.75% 7/23 Bond 6.8%
Alliance Resource Partners 7.5% 5/25 Bond 2.7%
British American Tobacco PLC Equity 2.6%
Energy Transfer LP Equity 4.3%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Alternative asset managers Apollo Global (APO) and Sculptor Capital Management (SCU) fell with the broad equity market following the US attacks on Iran. CenturyLink (CTL) announced T. Michael Glenn will assume the position of Chairman after Harvey Perry retires, effective May 2020. Seaspan (SSW) maintained their $0.125/share quarterly dividend (3.6% annualized yield). Chemours (CC) fell below its 50-day moving average.

Exhibit 3: Significant Detractors from Performance, 12/27/19 – 1/3/20

Name Type Return
The Chemours Co Equity -4.1%
Apollo Global Management Inc Equity -1.6%
CenturyLink Inc Equity -6.2%
Seaspan Corp Equity -2.0%
Sculptor Capital Management 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 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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