April 6, 2020

Income Strategy Update for Week Ended 4/3/20

Alrosa Advances on Potential Finance Ministry Support, Dividend Commitment While Alternative Asset Managers Fall

Last week, the Income Strategy advanced declined -10.27%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -1.03% fall and the S&P 500’s -2.02% loss. (Exhibit 1). The strategy ended the week down -42.88% YTD, or 2,764 basis points behind the high yield index and 2,032 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 4/3/201

Time Period Income Strategy ML HY II S&P 500
Last Week (3/27 – 4/3) -10.27% -1.03% -2.02%
MTD -7.26% -2.43% -3.68%
QTD -7.26% -2.43% -3.68%
YTD -42.88% -15.24% -22.56%
Inception (annualized since 4/2/2009) 7.92% 9.14% 13.23%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors. Alrosa (ALRS RX) rose on reports the Russian Finance Ministry is considering supporting the company through purchases of diamonds. Further, management stated they are not currently discussing deferring dividend payments. British American Tobacco (BATS LN) rose after announcing they’re in pre-clinical testing for a plant-based vaccine for COVID-19 through their US biotech subsidiary Kentucky BioProcessing. Sberbank (SBER LI) announced the postponement of its annual meeting to June 26th but maintained their commitment to the previously announced dividend of RUB 18.7/share (9.8% annualized yield). There was no price-changing news on the debt of Curo Group (CURO) or Endo International (ENDP).

Exhibit 2: Significant Contributors to Performance, 3/27/20 – 4/3/20

Name Type Return
Alrosa Equity 11.3%
British American Tobacco Equity 11.8%
Curo Group 8.25% 9/25 Bond 8.1%
Sberbank Equity 7.1%
Endo International 6.0% 7/23 Bond 4.6%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors. Alternative asset managers Apollo Global Management (APO) and Carlyle Group (CG) fell in conjunction with the broad equity market. Further, Deutsche Bank reduced estimates for the group, citing an expected slowdown in both capital deployment and realization activity. B Riley maintained their “Neutral” rating on Cedar Fair (FUN) with a $22 price target, 20% implied upside from current levels excluding the 20.1% dividend yield, noting uncertainty surrounding the duration of theme park closures. Quad Graphics (QUAD) announced a COVID-19 business update whereby management withdrew FY20 guidance, temporarily suspended the quarterly dividend and reported a $100M drawdown on their line of credit. Further, management implemented temporary salary reductions for over 300 executives, including a 50% reduction for CEO Joel Quadracci. There was no price-changing news on the debt of Diebold Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 3/27/20 – 4/3/20

Name Type Return
Cedar Fair LP Equity -28.2%
Quad Graphics Equity -32.8%
Diebold Nixdorf 8.5% 4/24 Bond -9.0%
Apollo Global Management Equity -10.0%
Carlyle Group Equity -12.5%

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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