January 7, 2019

Income Strategy Update for Week Ended 1/4/19

Macquarie Infrastructure Rises on Oppenheimer’s Optimism While Chimera Falls on Lower Price Target at Credit Suisse

Last week, the Income Strategy advanced 4.58%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 1.46% rise and the S&P 500’s 1.90% gain. (Exhibit 1). The strategy ended the week up 4.73% YTD, or 344 basis points ahead of the high yield index and 370 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 1/4/191

Time Period Income Strategy ML HY II S&P 500
Last Week (12/28 – 1/4) 4.58% 1.46% 1.90%
MTD 4.73% 1.29% 1.03%
QTD 4.73% 1.29% 1.03%
YTD 4.73% 1.29% 1.03%
Inception (annualized since 4/2/2009-11/30/18) 14.34% 11.08% 16.11%

Source: Bloomberg, Miller Value Partners

Equities comprised last week’s top five contributors (Exhibit 2). Oppenheimer maintained an “Outperform” rating on Macquarie Infrastructure Corp (MIC) with a $45 price target, 13% implied upside excluding the 10.1% dividend yield. The analyst is expecting a strong quarter driven by growth in the Atlantic Aviation segment and the successful re-contracting of IMTT’s repurposed capacity. Tupperware Brands (TUP), Just Energy Group (JE CN), and Alrosa PJSC (ALRS RX) all moved above closely watched technical levels. There was no price-changing news on National CineMedia (NCMI).

Exhibit 2: Significant Contributors to Performance, 12/28/18 – 1/4/19

Name Type Return
National CineMedia Equity 10.1%
Macquarie Infrastructure Corp Equity 5.6%
Tupperware Brands Corp Equity 8.4%
Just Energy Group Inc Equity 5.8%
Alrosa PJSC Equity 6.9%

Source: Miller Value Partners

A smattering of asset types comprised last week’s top five detractors (Exhibit 3). Credit Suisse maintained their “Outperform” rating on Chimera Investment Group (CIM), but lowered their price target from $19 to $18.50, in-line with current levels representing a 114% premium to the analyst’s estimated book value. Further from Credit Suisse, they named Starwood Property Trust (STWD) as one of their top picks in the Commercial Mortgage REIT space for 2019, citing Starwood’s diversified, multi-cylinder portfolio and attractive returns in their core commercial lending segment. The analyst has a $25 price target on the shares, 23% implied upside excluding the 9.5% dividend yield. Goldman Sachs upgraded Carlyle Group (CG) from “Neutral” to “Buy” with a $21 price target, 27% implied upside excluding the 10.1% dividend yield. The analyst believes the recent share price decline fails to reflect considerable changes in Carlyle’s cash flow stability amid significant growth in fee-related earnings and an improved backdrop for incentive income. There was no price changing news on the debt of Ascena Retail Group (ASNA).

Exhibit 3: Significant Detractors from Performance, 12/28/2018 – 1/4/19

Name Type Return
Chimera Investment Corp Equity -0.6%
Cash Cash 0.0%
Starwood Property Trust Equity 0.2%
Ascena Retail Group TL B 1L 8/22 Term Loan 0.1%
Carlyle Group LP Equity 0.2%

Source: Miller Value Partners


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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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