November 26, 2018

Income Strategy Update for Week Ended 11/23/18

Alternative Asset Managers Bounce Back While Mortgage REITs Fall on Credit Suisse Outlook

Last week, the Income Strategy advanced 0.37%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.29% decline and the S&P 500’s -3.77% fall. (Exhibit 1). The strategy ended the week up 2.46% YTD, or 294 basis points ahead of the high yield index and 227 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 11/23/181

Time Period Income Strategy ML HY II S&P 500
Last Week (11/16 – 11/23) 0.37% -0.29% -3.77%
MTD -1.21% -1.31% -2.74%
QTD -7.87% -2.93% -9.39%
YTD 2.46% -0.48% 0.19%
Inception (annualized since 4/2/2009-10/31/18) 14.49% 11.28% 16.01%

Source: Bloomberg, Miller Value Partners

Equities comprised all of last week’s top five contributors (Exhibit 2). Alternative Asset Managers Carlyle Group (CG) and Apollo Global Management (APO) bounced back nicely after last week’s slide. Further on Apollo, top holder Tiger Global added 100,000 shares for $2.8M. Just Energy Group (JE CN) formed a golden cross as the stock’s 50-day moving average rose above its 100-day moving average. There was no price-changings news on Maiden Holdings (MHLD) or Macquarie Infrastructure Corp (MIC).

Exhibit 2: Significant Contributors to Performance, 11/16/18 – 11/23/18

Name Type Return
Carlyle Group LP Equity 5.8%
Just Energy Group Inc Equity 4.9%
Apollo Global Management LLC Equity 3.9%
Maiden Holdings Ltd Equity 7.5%
Macquarie Infrastructure Co Equity 2.1%

Source: Miller Value Partners

Equities also comprised last week’s top five detractors (Exhibit 3). Mortgage REITs Arlington Asset Investment (AI) and New Residential Investment (NRZ) fell on a note from Credit Suisse outlining the challenging environment for Agency MBS and seeing continued pressure on book values with the potential for further spread widening. Credit Suisse lowered their price target on Arlington to $8.50, 20% total return upside, but maintained their $20 price-target on New Residential, 30% total return upside. MoffettNathanson reiterated their “Sell” rating on CenturyLink (CTL) and lowered their price target from $19 to $16, -12.5% downside excluding the dividend. The analyst remains pessimistic the company can maintain its current dividend payout given their expectations for lower revenue and free cash flow. The stock closed the week below its 200-day moving average. Seaspan (SSW) fell despite Seaport Global raising their price target to $12, 32% implied upside excluding the dividend. Hi-Crush Partners (HCLP) fell on a bearish note from Jefferies, who expects Northern White sand pricing to remain under pressure into next year.

Exhibit 3: Significant Detractors from Performance, 11/16/2018 – 11/23/18

Name Type Return
Arlington Asset Investment Corp Equity -4.4%
CenturyLink Inc Equity -3.9%
Seaspan Corp Equity -4.4%
New Residential Investment Corp Equity -2.8%
Hi-Crush Partners LP Equity -12.6%

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 fee 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.

©2018 Miller Value Partners, LLC

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