January 29, 2018

Income Strategy Update for Week Ended 1/26/18

Abercrombie & Fitch Advances on Strong Q4 Guidance While Arlington Asset Falls Below Closely Watched Technical Levels

Last week, the Income Strategy advanced 3.02%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.32% gain and the S&P 500’s 2.23% rise (Exhibit 1). The strategy ended the week up 4.96% YTD, or 401 basis points ahead of the high yield index and 259 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 1/26/181

Time Period Income Strategy ML HY II S&P 500
Last Week (1/19 – 1/26) 3.02% 0.32% 2.23%
MTD 4.96% 0.95% 7.55%
QTD 4.96% 0.95% 7.55%
YTD 4.96% 0.95% 7.55%
Inception (annualized since 4/2/2009) 15.72% 12.19% 17.37%

Source: Bloomberg, Miller Value Partners

Four equities and a preferred comprised last week’s top five contributors (Exhibit 2). AmTrust Financial (AFSI) released an updated 13D regarding the proposed tender offer for its common shares. The new filing says that the preferred shares will remain outstanding and current, which helped reduce anxiety about what might happen to them. Abercrombie & Fitch (ANF) advanced after boosting their Q4 forecast, where they see comp sales up in the high-single digits from the low-single digits, as well as net sales up in the low-teens from the mid-to-high single digits. Better than expected performance was attributed to strong holiday sales at both the namesake and Hollister brands. Further, the company announced the retirement of Executive Chairman Arthur Martinez and the subsequent appointment of Terry Burman to Non-Executive Chairman. Hi-Crush Partners (HCLP) and Carlyle Group (CG) both formed golden crosses, as their 50-day moving averages rose above longer-term technical levels. Seaport Global upgraded Seaspan (SSW) to “Buy” from “Neutral” with a $10 price target, 32.5% above where it currently trades. The analyst is encouraged by the new management team who is focused on reducing leverage, increasing unencumbered assets, controlling costs, and preserving the dividend.

Exhibit 2: Significant Contributors to Performance, 1/19/18 – 1/26/18

Name Type Return
AmTrust Financial Services 6.95% Preferred 14.4%
Abercrombie & Fitch Co Equity 11.5%
Hi-Crush Partners LP Equity 10.1%
Seaspan Corp Equity 13.1%
Carlyle Group LP Equity 5.1%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors (Exhibit 3). Arlington Asset Investment Corp (AI) fell below closely watched technical levels, as investors worry about what might happen to a business model whose primary risk is interest rate volatility. Medley Capital (MCC) announced it priced $121.1M 5.05% Series A Notes due in 2024 in a deal that was upsized from $82.1M on strong demand. There was no price-changing news on Washington Prime Group (WPG), Rent-A-Center (RCII), or BCG Partners (BGCP).

Exhibit 3: Significant Detractors from Performance, 1/19/18 – 1/26/18

Name Type Return
Arlington Asset Investment Corp Equity -5.1%
Washington Prime Group Equity -2.0%
Rent-A-Center 4.75% 5/21 Bond -1.7%
Medley Capital Corp Equity -2.1%
BCG Partners Equity -0.7%

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 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, LLC

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