June 22, 2020

Income Strategy Update for Week Ended 6/19/20

Apollo Global Gains on Athene Insurance Transaction While GEO Group Falls with CoreCivic’s Dividend Suspension, Capital Allocation Review

Last week, the Income Strategy advanced 0.97%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.86% rise but underperforming the S&P 500’s 1.88% gain. (Exhibit 1). The strategy ended the week down -22.64% YTD, or 1,942 basis points behind the high yield index and 1,945 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/19/201

Time Period Income Strategy ML HY II S&P 500
Last Week (6/12 – 6/19) 0.97% 0.86% 1.88%
MTD 6.68% 2.63% 1.88%
QTD 25.60% 11.40% 20.41%
YTD -22.64% -3.22% -3.19%
Inception (annualized since 4/2/2009) 10.70% 10.26% 15.24%

Source: Bloomberg, Miller Value Partners

Three equities and two bonds comprised last week’s top five contributors. Apollo Global Management (APO) announced another material insurance transaction through its affiliate Athene Holdings (ATH), who entered into a $27Bn fixed annuity reinsurance deal with Jackson National Life Insurance. The deal adds $29Bn of assets to Apollo that will be redeployed in the next 12-18 months into higher yielding, long-term assets and be immediately accretive to fee-related earnings. Debt of Alliance Resource Partners (ARLP) rose as Chief Accounting Officer Robert Fouch purchased $185.7K worth of stock at $4.01. CenturyLink (CTL) announced the completion of Level 3’s previously announced offer of $1Bn senior unsecured notes due 2028 with proceeds being applied to retire 2022 and 2023 notes. Additionally, CenturyLink’s Qwest Corp announced the redemption of its 6.875s of 2054. Chemours (CC) rose as Barclays remained bullish following virtual meetings with management, who noted a sequential pick-up in TiO2 demand in June and the belief they have taken back market share over the last several quarters. Additionally and in response to weakness in autos, Chemours announced they have idled a few plants to avoid inventory and margin issues in the second half of the year. British American Tobacco (BATS LN) rose above closely watched technical levels and in sympathy with peer Altria (MO), who announced price increases of $0.06-$0.11 on cigarettes.

Exhibit 2: Significant Contributors to Performance, 6/12/20 – 6/19/20

Name Type Return
Apollo Global Management Equity 7.9%
Alliance Resource Partners 7.5% 5/25 Bond 7.7%
CenturyLink Inc 7.6% 9/39 Bond 3.3%
The Chemours Co Equity 5.5%
British American Tobacco Equity 4.3%

Source: Miller Value Partners

Three equities and two bonds comprised last week’s top five detractors. Bed Bath & Beyond (BBBY) announced the re-opening of a majority of its store fleet by the end of June. GEO Group (GEO) fell in sympathy with peer CoreCivic (CXW), who suspended their dividend to re-evaluate capital allocation priorities despite continued strength in earnings and cash flow generation. Diebold Nixdorf (DBD) announced the extension of its strategic relationship with Accenture (ACN) to accelerate their digital and cloud transformation program. The partnership is expected to provide Diebold $50M of incremental cost savings through 2023. Sculptor Capital Management (SCU) and Chico’s (CHS) both fell below their 50-day moving averages.

Exhibit 3: Significant Detractors from Performance, 6/12/20 – 6/19/20

Name Type Return
Bed Bath & Beyond 5.165% 8/44 Bond -6.6%
GEO Group Equity -6.7%
Diebold Nixdorf 8.5% 4/24 Bond -2.3%
Sculptor Capital Management Equity -10.0%
Chico’s FAS Equity -6.7%

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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