June 4, 2018

Income Strategy Update for Week Ended 6/1/18

Seaspan Advances on Additional Fairfax Financial Investment While Abercrombie & Fitch Trades Down Despite Strong Earnings Report

Last week, the Income Strategy advanced 0.67%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.09% rise and the S&P 500’s 0.54% gain (Exhibit 1). The strategy ended the week up 8.20% YTD, or 838 basis points ahead of the high yield index and 506 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/1/181

Time Period Income Strategy ML HY II S&P 500
Last Week (5/25- 6/1) 0.67% 0.09% 0.54%
MTD 0.22% 0.08% 1.09%
QTD 9.25% 0.73% 3.93%
YTD 8.20% -0.18% 3.14%
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). Seaspan (SSW) announced an additional investment of $500M from Fairfax Financial Holdings (FRFHF), who will exercise 77M warrants and provide Seaspan with capital to pay down debt and some high cost preferreds, as well as give management the option to grow their fleet. In lieu of the early exercise, Seaspan will issue warrants that will exercise for 25M shares at $8.05 and a term of seven-years. Carlyle Group (CG) moved above its 100-day moving average. There was no price-changing news on Maiden Holdings (MHLD), Apollo Global Management (APO), or National CineMedia (NCMI).

Exhibit 2: Significant Contributors to Performance, 5/25/18 – 6/1/18

Name Type Return
Maiden Holdings Ltd Equity 10.8%
Seaspan Corp Equity 7.7%
Apollo Global Management LLC Equity 2.2%
National CineMedia Equity 3.8%
Carlyle Group LP Equity 2.3%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Abercrombie & Fitch (ANF) posted a narrower than expected Q1 EPS loss of $(0.56), handily surpassing analyst estimates of $(0.77), while same-store sales of +5% topped consensus of +3.6%. The company saw gross margins expand +20bps and management increased FY18 comps guidance from low-single digits to +2% to +4%. The company traded down, however, on flat international comps (vs +5% in Q4), which seems to be overdone given the decline was in non-flagship stores and likely hurt by seasonality. There was no price-changing news on Greenhill (GHL), New Residential Investment (NRZ), or Hi-Crush Partners (HCLP).

Exhibit 3: Significant Detractors from Performance, 5/25/2018 – 6/1/18

Name Type Return
Abercrombie & Fitch Co Equity -14.5%
Greenhill & Co Equity -3.8%
New Residential Investment Corp Equity -1.7%
Hi-Crush Partners LP Equity -1.1%

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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