July 9, 2018

Income Strategy Update for Week Ended 7/6/18

Alternative Asset Managers Rise on Citi Optimism While Community Health Falls on Piper Jaffray Caution

Last week, the Income Strategy advanced 2.88% outperforming the Merrill Lynch U.S. High Yield Master II Index’s -0.01% decline and the S&P 500’s 1.56% gain (Exhibit 1). The strategy ended the week up 14.01% YTD, or 1,394 basis points ahead of the high yield index and 976 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/6/181

Time Period Income Strategy ML HY II S&P 500
Last Week (6/29- 7/6) 2.88% -0.01% 1.56%
MTD 2.88% -0.01% 1.56%
QTD 2.88% -0.01% 1.56%
YTD 14.01% 0.07% 4.25%
Inception (annualized since 4/2/2009-5/31/18) 15.71% 11.70% 16.68%

Source: Bloomberg, Miller Value Partners

Five equities comprised last week’s top five contributors (Exhibit 2). Alternative asset managers Carlyle Group (CG), Apollo Global Management (APO), and Blackstone Group (BX) rose on a bullish note from Citi, which cited strong fundamental and value appeal, as well as broad market volatility creating a buying opportunity. Further, all three names formed a golden cross, while Carlyle Group and Blackstone also moved above closely watched technical levels. There was no price-changing news on CenturyLink (CTL) or National CineMedia (NCMI).

Exhibit 2: Significant Contributors to Performance, 6/29/18 – 7/6/18

Name Type Return
Carlyle Group Equity 11.0%
Apollo Group Management LLC Equity 9.4%
Blackstone Group LP Equity 10.4%
CenturyLink Inc Equity 5.5%
National CineMedia Equity 5.0%

Source: Miller Value Partners

A smattering of asset types comprised last week’s top five detractors (Exhibit 3). Debt of Community Health Systems (CYH) slid on a cautious note from Piper Jaffray, stating hospital operators face tough comps in Q2 and that street estimates for a 50bps acceleration in adjusted admissions is too high compared to their estimates of a 10bps decrease. Preferred shares of AmTrust Financial (AFSI) fell after A.M. Best downgraded their Financial Strength Rating from “A” to “A-“ with a stable outlook, but added the company still maintains a very strong balance sheet. There was no price-changing news on Frontier Communications (FTR) or SunCoke Energy Partners (SXCP).

Exhibit 3: Significant Detractors from Performance, 6/29/2018 – 7/6/18

Name Type Return
Frontier Communications 10.5% 9/22 Bond -0.8%
Community Health Systems 6.875% 2/22 Bond -3.9%
AmTrust Financial Services 6.95% Preferred -0.2%
SunCoke Energy Partners LP Equity -0.7%

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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