May 18, 2020

Income Strategy Update for Week Ended 5/15/20

Abercrombie & Fitch Rises on Citi Optimism While Apollo Global Falls Below Closely Watched Technical Levels

Last week, the Income Strategy declined -4.33%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.73% loss and the S&P 500’s -2.20% fall. (Exhibit 1). The strategy ended the week down -34.19% YTD, or 2,433 basis points behind the high yield index and 2,350 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/15/201

Time Period Income Strategy ML HY II S&P 500
Last Week (5/8 – 5/15) -4.33% -0.73% -2.20%
MTD -4.68% -0.04% -1.54%
QTD 6.85% 3.75% 11.08%
YTD -34.19% -9.86% -10.69%
Inception (annualized since 4/2/2009) 9.20% 9.65% 14.54%

Source: Bloomberg, Miller Value Partners

Four bonds and an equity comprised last week’s top five contributors. Citigroup maintained their “Buy” rating on Abercrombie & Fitch (ANF) with a $17 price target, 42% implied upside excluding the 6.7% dividend yield. The analyst notes Abercrombie is a potential M&A candidate given its attractive valuation relative to its strong brand portfolio and that the company should gain market share in teen as competitors close their stores. Endo International (ENDP) announced a debt exchange offer for up to $2.85Bn unsecured bonds due 2023 and 2025 for new secured and unsecureds bonds due in 2027 and 2028. Debt of Diebold Nixdorf (DBD) gained as insiders purchased 67,455 shares totaling $311,000. There was no price changing news on the debt of Alliance Resource Partners (ARLP) or CenturyLink (CTL).

Exhibit 2: Significant Contributors to Performance, 5/8/20 – 5/15/20

Name Type Return
Abercrombie & Fitch Co Equity 5.2%
Alliance Resource Partners 7.5% 5/25 Bond 3.3%
CenturyLink 7.6% 9/39 Bond 0.9%
Endo International 6.0% 7/23 Bond 1.1%
Diebold Nixdorf 8.5% 4/24 Bond 0.2%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors. Debt of Bed Bath & Beyond (BBBY) fell as a round-lot trade between affiliates appears to have caused IDC to price the bonds significantly below where we have been able to transact. Additionally, the company appointed Cindy Davis as Chief Brand Officer and President of Decorist, the company’s online interior design platform. Most recently, Davis was the Chief Digital Marketing Officer at Victoria’s Secret. Apollo Global Management (APO) fell below closely watched technical levels despite Wells Fargo and Goldman maintaining their “Overweight” and “Buy” ratings, respectively with both raising their price target to $48 (from $44), 12% implied upside excluding the 3.9% dividend yield. BMO Capital Markets maintained their “Outperform” rating on Chemours (CC) with a $15 price target, 18% implied upside excluding the 7.9% dividend yield. The analyst cites that while the near-term outlook for titanium dioxide remains challenged, they remain constructive on the stock given solid free cash flow generation that should push shares higher when the macro environment begins to recover. Quad Graphics (QUAD) fell below its 50-day moving average. There was no price-changing news on Cedar Fair (FUN).

Exhibit 3: Significant Detractors from Performance, 5/8/20 – 5/15/20

Name Type Return
Bed Bath & Beyond 5.165% 8/44 Bond -13.6%
Apollo Global Management Equity -6.4%
Cedar Fair Equity -10.9%
The Chemours Co Equity -12.2%
Quad Graphics Equity -21.3%

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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