July 23, 2018

Income Strategy Update for Week Ended 7/20/18

Energy Transfer Partners Advances on FERC Tax Rule Clarification While Sberbank Falls Below 50-Day Moving Average

Last week, the Income Strategy declined -0.76% underperforming the Merrill Lynch U.S. High Yield Master II Index’s 0.10% advance and the S&P 500’s 0.04% gain (Exhibit 1). The strategy ended the week up 12.53% YTD, or 1,185 basis points ahead of the high yield index and 663 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/20/181

Time Period Income Strategy ML HY II S&P 500
Last Week ( 7/13-7/20) -0.76% 0.10% 0.04%
MTD 1.55% 0.61% 3.17%
QTD 1.55% 0.61% 3.17%
YTD 12.53% 0.69% 5.90%
Inception (annualized since 4/2/2009-6/30/18) 15.88% 11.62% 16.60%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Maiden Holdings (MHLD) rose above its 50-day moving average. Energy Transfer Partners (ETP) rose in conjunction with Energy MLPs on news that the Federal Energy Regulatory Commission (FERC) finalized its natural gas pipeline tax law, which eliminates accumulated deferred income tax from a pipeline’s cost of service when federal and state income tax is entered as zero for pipelines that are non-tax paying entities, as opposed to booking a regulatory liability that would be amortized back to customers. The ruling also allows MLPs consolidated by C-Corps to be treated as such and to book income tax allowance. TriplePoint Venture Growth (TPVG) rose above its 50-day moving average on news that Deutsche Bank initiated the stock with a “Buy” rating and a $14.50 price target, 7.1% upside excluding the dividend. The analyst cited the company’s competitive advantage in targeting investments in venture growth firms, which have less leverage and are not yet profitable, making them outside the scope for most BDCs. Blackstone (BX) advanced after reporting strong Q2 economic net income of $0.90, handily surpassing consensus estimates of $0.74 and the dividend of $0.58/share (6.4% annualized yield). The beat was driven by stronger than expected net performance fees as private equity appreciated 9.5%, while AUM is forecasted to move significantly higher on a healthy near-term realization outlook. There was no price-changing news on Greenhill & Co (GHL).

Exhibit 2: Significant Contributors to Performance, 7/13/18 – 7/20/18

Name Type Return
Maiden Holdings Ltd Equity 7.8%
Energy Transfer Partners LP Equity 4.2%
Greenhill & Co Equity 2.6%
TriplePoint Venture Growth BDC Corp Equity 6.9%
Blackstone Group LP Equity 2.1%

Source: Miller Value Partners

Five equities comprised last week’s top five detractors (Exhibit 3). Sberbank (SBER LI) fell below its 50-day moving average and announced a 40B RUB (~$635M) 7.5% bond offering. Hi-Crush Partners (HCLP) fell below its 200-day moving average and in sympathy with frac sand stocks as Union Pacific (UNP) outlined in their Q2 earnings call that frac sand shipments into the Permian Basin declined Y/Y in June for the first time in 2018. Seaspan (SSW) fell below its 50-day moving average on continued weakness from the shipping sector over trade war concerns. There was no price-changing news on CenturyLink (CTL) or Apollo Global Management (APO).

Exhibit 3: Significant Detractors from Performance, 7/13/2018 – 7/20/18

Name Type Return
Sberbank-Sponsored ADR Equity -12.9%
Hi-Crush Partners LP Equity -6.5%
CenturyLink Inc Equity -5.6%
Seaspan Corp Equity -5.8%
Apollo Global Management LLC Equity -2.0%

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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