December 23, 2019

Income Strategy Update for Week Ended 12/20/19

Alternative Asset Managers Gain on Sell-Side Optimism While William Hill Falls Despite Strong US Sports Betting Data

Last week, the Income Strategy advanced 2.08%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.68% gain and the S&P 500’s 1.68% rise. (Exhibit 1). The strategy ended the week up 23.40% YTD, or 917 basis points ahead of the high yield index and 765 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 12/20/191

Time Period Income Strategy ML HY II S&P 500
Last Week (12/13 – 12/20) 2.08% 0.68% 1.68%
MTD 6.23% 1.93% 2.68%
QTD 8.02% 2.44% 8.71%
YTD 23.40% 14.23% 31.05%
Inception (annualized since 4/2/2009) 13.82% 11.08% 16.31%

Source: Bloomberg, Miller Value Partners

Equities comprised last week’s top five contributors (Exhibit 2). Alternative asset managers rose with the broad equity market and on sell-side optimism. Credit Suisse named Apollo Global (APO) as its top pick in the asset manager space on expectations for stronger-than-expected fee-related earnings growth, a step-up in performance fees, and attractive valuation. The analyst sees 15% upside to their $54 price target. Citi maintained their “Buy” rating on Carlyle Group (CG) while increasing their price target from $30.50 to $34.50, 11% implied upside excluding the 4% dividend yield. Diamond miner Alrosa (ALRS RX) moved above its 200-day moving average as UBS believes diamond demand has stabilized and that we could be close to the end of the destocking cycle, driving sequential improvement in demand and supporting an earnings recovery. Chemours (CC) advanced on news a judge has temporarily halted arbitration in their suit with DuPont (DD). Bank of America double upgraded British American Tobacco (BATS LN) to “Buy” with a 3,400p price target, 3.5% implied upside excluding the 6.2% dividend yield, citing a favorable competitive environment for its next-generation product portfolio and lower near-term regulatory risk.

Exhibit 2: Significant Contributors to Performance, 12/13/19 – 12/20/19

Name Type Return
Apollo Global Management Inc Equity 8.6%
Carlyle Group LP Equity 5.2%
Alrosa PJSC Equity 6.5%
The Chemours Co Equity 6.0%
British American Tobacco PLC Equity 5.4%

Source: Miller Value Partners

Equities and a bond comprised last week’s top five detractors (Exhibit 3). William Hill (WMH LN) fell despite strong monthly sports betting data out of Pennsylvania (+31% M/M to $316M) and New Jersey (+63% M/M to $538M). Buckingham Research maintained their “Neutral” rating on Quad Graphics (QUAD) but lowered their price target from $7 to $5, 16% implied upside excluding the 13.9% dividend yield, reflecting slightly lower estimates for the discontinuation of the Book business. Arlington Asset Investment Corp (AI) fell below its 50-day moving average. There was no price-changing news on Sculptor Capital Management (SCU).

Exhibit 3: Significant Detractors from Performance, 12/13/19 – 12/20/19

Name Type Return
William Hill PLC Equity -3.8%
Sculptor Capital Management Equity -3.8%
Quad Graphics Equity -2.5%
Arlington Asset Investment Corp Equity -3.0%

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 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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