May 29, 2018

Income Strategy Update for Week Ended 5/25/18

Apollo Global Advances on Morgan Stanley Optimism, as CenturyLink, Abercrombie Fall While Maintaining Dividends

Last week, the Income Strategy advanced 0.34%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s -0.02% decline and the S&P 500’s 0.33% gain (Exhibit 1). The strategy ended the week up 7.47% YTD, or 774 basis points ahead of the high yield index and 489 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 5/25/181

Time Period Income Strategy ML HY II S&P 500
Last Week (5/18- 5/25) 0.34% -0.02% 0.33%
MTD 5.06% -0.02% 2.97%
QTD 8.52% 0.65% 3.37%
YTD 7.47% -0.27% 2.58%
Inception (annualized since 4/2/2009-4/30/18) 15.17% 11.81% 16.54%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Morgan Stanley reiterated their “Overweight” rating on Apollo Global Management (APO) with a $41 price target (8x 2019E EPS), 30.2% above where it currently trades, citing accelerating growth in management fees, a sustainable performance fee upcycle, and a compelling valuation and entry point given YTD underperformance. Mall REITs Washington Prime Group (WPG) and CBL & Associates (CBL) rose on a more optimistic outlook stemming from last week’s ICSC global real estate conference, with positive commentary surrounding tenant demand, leasing velocity, and signs of stabilization in the overall retail environment. Further, CBL, as well as Compass Diversified Holdings (CODI), rose above closely watched technical levels. There was no price-changing news on Maiden Holdings (MHLD).

Exhibit 2: Significant Contributors to Performance, 5/18/18 – 5/25/18

Name Type Return
Apollo Global Management LLC Equity 8.0%
Maiden Holdings Ltd Equity 7.5%
Washington Prime Group Inc Equity 6.8%
CBL & Associates Properties Equity 8.8%
Compass Diversified Holdings Equity 8.1%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Hi-Crush Partners (HCLP) fell last week, despite R.F. Lafferty reiterating their “Buy” rating on the stock with a $25 price target (8.5x 2018E EV/EBITDA), implied upside of 89.0% excluding the dividend. The analyst believes appreciation will be driven by pricing improvement and elevated demand, which is expected to outpace supply. CenturyLink (CTL) maintained their $0.54/share dividend (11.9% annualized yield). Abercrombie & Fitch (ANF) fell below the 50-day moving average as the company maintained their $0.20/share dividend (3.1% annualized yield). Energy Transfer Partners (ETP) fell after a judge ordered a JV partner shut down the Mariner pipeline for failing to identify leaks. There was no price-changing news on Seaspan Corp (SSW).

Exhibit 3: Significant Detractors from Performance, 5/18/2018 – 5/25/18

Name Type Return
Hi-Crush Partners LP Equity -8.0%
CenturyLink Inc Equity -5.8%
Abercrombie & Fitch Co Equity -5.9%
Seaspan Corp Equity -3.8%
Energy Transfer Partners LP Equity -2.3%

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 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.

©2018 Miller Value Partners, LLC

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