January 28, 2019

Income Strategy Update for Week Ended 1/25/19

Seaspan Advances With Peer Results While Alternative Asset Managers Fall Despite Oppenheimer Optimism

Last week, the Income Strategy declined -0.25%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.01% fall and the S&P 500’s -0.21% loss. (Exhibit 1). The strategy ended the week up 11.68% YTD, or 778 basis points ahead of the high yield index and 527 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 1/25/191

Time Period Income Strategy ML HY II S&P 500
Last Week (1/18 – 1/25) -0.25% -0.01% -0.21%
MTD 11.68% 3.90% 6.41%
QTD 11.68% 3.90% 6.41%
YTD 11.68% 3.90% 6.41%
Inception (annualized since 4/2/2009) 14.00% 11.07% 15.44%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). New Residential Investment Corp (NRZ) and Arlington Asset Investment (AI) moved above closely watched technical levels. Seaspan (SSW) rose in sympathy with peer Costamare (CMRE), who reported better-than-expected Q4 results and guided towards an improving containership charter market. Barclays maintained their Overweight rating on Two Harbors Investment Corp (TWO) with a $16 price target, 10.7% implied upside excluding the 13% dividend yield. The analyst cited the company’s attractive valuation at 0.92x P/B compared to the peer group of 1.02x, as well as expectations for subdued rate volatility that should benefit book value and dividends.

Exhibit 2: Significant Contributors to Performance, 1/18/19 – 1/25/19

Name Type Return
New Residential Investment Corp Equity 2.9%
Arlington Asset Investment Corp Equity 2.3%
Seaspan Corp Equity 3.2%
Two Harbors Investment Corp Equity 2.5%

Source: Miller Value Partners

Equities comprised last week’s top five detractors (Exhibit 3). Alternative Asset Managers Carlyle Group (CG) and Apollo Global Management (APO) fell despite a bullish note from Oppenheimer citing attractive group valuations and expectations for a 14% CAGR in fee-related earnings through 2020. The analyst has a $31 price target on Carlyle and $41 price target on Apollo, implied upside of 76% and 48%, respectively. Alrosa (ALRS RX) reported its Q4 operating results which were in-line with consensus expectations and saw sales and production volumes of 5.3M and 10.3M carats, respectively. Some weakness stemmed from gem-quality diamond prices falling 23% Q/Q, which could imply weaker-than-expected financial results that will be announced in March. National CineMedia (NCMI) fell below its 50-day moving average. There was no price-changing news on Greenhill (GHL).

Exhibit 3: Significant Detractors from Performance, 1/18/2019 – 1/25/19

Name Type Return
Carlyle Group Equity -5.5%
Apollo Global Management Equity -2.2%
Greenhill & Co Equity -3.8%
Alrosa PJSC Equity -2.4%
National CineMedia Equity -2.7%

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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