July 16, 2018

Income Strategy Update for Week Ended 7/13/18

Alternative Asset Managers Rise While Seaspan Falls on Trade Concerns

Last week, the Income Strategy declined -0.54% underperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.52% advance and the S&P 500’s 1.55% gain (Exhibit 1). The strategy ended the week up 13.39% YTD, or 1,280 basis points ahead of the high yield index and 753 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/13/181

Time Period Income Strategy ML HY II S&P 500
Last Week ( 7/6-7/13) -0.54% 0.52% 1.55%
MTD 2.33% 0.51% 3.13%
QTD 2.33% 0.51% 3.13%
YTD 13.39% 0.59% 5.86%
Inception (annualized since 4/2/2009-6/30/18) 15.88% 11.62% 16.60%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2). Alternative asset managers Apollo Global Management (APO) and Carlyle Group (CG) advanced on a bullish note from Jefferies, outlining expectations for +2.5% earnings increases across the board, healthy exit activity, and narrative surrounding C-Corp conversion. Jefferies currently has a “Buy” rating on both Apollo & Carlyle, with price targets of $41 (14.2% upside) and $27 (13.2% upside), respectively. Further, Carlyle formed a golden cross. Debt of Endo Pharmaceuticals (ENDP) traded higher after B. Riley reiterated their “Buy” rating on the company, viewing it as an attractive turn-around candidate, directly benefitting from stabilized generic pricing. There was no price-changing news on Greenhill (GHL) or CenturyLink (CTL).

Exhibit 2: Significant Contributors to Performance, 7/6/18 – 7/13/18

Name Type Return
Apollo Global Management LLC Equity 3.6%
Greenhill & Co Equity 3.0%
Endo Pharmaceuticals Holdings 6% 7/23 Bond 1.6%
CenturyLink Inc Equity 1.1%
Carlyle Group LP Equity 0.6%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Shipping operator Seaspan (SSW) fell on trade concerns, as well as on a cautious note from Morgan Stanley questioning the sustainability of containership charter rates, which have seen extended gains YTD. Maiden Holdings (MHLD) fell below its 50-day moving average. Hi-Crush Partners (HCLP) fell after Goldman Sachs lowered its price target for frac sand stocks by 22%, citing lower utilization for disadvantaged mines in the Midwest and Texas regions. Washington Prime Group (WPG) declined on a new lease accounting rule that will impact REITs, particularly mall operators, and requires them to expense certain leasing and legal costs that have previously been capitalized and excluded from FFO. There was no price-changing news on National CineMedia (NCMI).

Exhibit 3: Significant Detractors from Performance, 7/6/2018 – 7/13/18

Name Type Return
Seaspan Corp Equity -9.0%
Maiden Holdings Ltd Equity -5.0%
National CineMedia Equity -4.5%
Hi-Crush Partners LP Equity -4.1%
Washington Prime Group Inc Equity -4.9%

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

Read more posts about: