September 9, 2019

Income Strategy Update for Week Ended 9/6/19

Announcement of Partnership with Ex–Domino’s CEO Pushes Carlyle Ahead as Och-Ziff Falls Below 50-day

Last week, the Income Strategy advanced 2.37%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.25% gain and the S&P 500’s 1.83% gain. (Exhibit 1). The strategy ended the week up 12.68% YTD, or 125 basis points ahead of the high yield index and 782 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 9/6/191

Time Period Income Strategy ML HY II S&P 500
Last Week (8/30 – 9/6) 2.37% 0.25% 1.83%
MTD 2.37% 0.25% 1.83%
QTD 1.30% 1.16% 1.66%
YTD 12.68% 11.43% 20.50%
Inception (annualized since 4/2/2009) 13.22% 11.13% 15.86%

Source: Bloomberg, Miller Value Partners

Equities comprised all of last week’s top five contributors (Exhibit 2). Apollo (APO) rose last week as it completed its conversion from a publicly traded partnership to a corporation. Carlyle Group (CG) crossed above the 50-day moving average as it closed a 10-year notes for $425M at 3.5%, or under 200 basis points above the rate at which the US government borrows. Chico’s (CHS) moved above the 50- and 100-day moving averages as apparel retailers rose on hopes of tariff relief as China and the US agreed to trade talks early next month. Quad Graphics (QUAD) rose above the 100-day moving average after selling its heavy-duty industrial wood-crating business Transpak to FCA packaging for $10M with the proceeds being used to pay down debt. Sberbank (SBER LI) gained on the week after reporting August net profit of RUB73.6B, up 3% YoY, and a 22% ROE. Retail loans were up 1.7% MoM and 19% YoY with the corporate portfolio showing improvement as well as with real growth of 0.7% MoM.

Exhibit 2: Significant Contributors to Performance, 8/30/19 – 9/6/19

Name Type Return
Apollo Global Management Inc Equity 7.8%
Carlyle Group LP Equity 7.7%
Chico’s FAS, Inc. Equity 12.8%
Quad Graphics Equity 7.6%
Sberbank Equity 4.2%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top detractors (Exhibit 3).  Och-Ziff (OZM) fell below the 50-day moving average. The company announced September AUM increased $100M MoM to $33.3B. The company plans to change its ticker on Sept. 12 to reflect the firm’s new name, Sculptor Capital Management Inc. NGL Energy Partners (NGL) announced that the Board had approved a unit repurchase program up to $150M, or almost 10% of its market cap, through September 2021. Endo International (ENDP) bonds fell in conjunction with Mallinckrodt (MNK) after a report that MNK had hired consultants specializing in restructuring to help explore potential costs from lawsuits tied to the sales of opioids. There was no price changing news on Energy Transfer LP (ET) or Blackstone Group (BX).

Exhibit 3: Significant Detractors from Performance, 8/30/19 – 9/6/19

Name Type Return
Och-Ziff Capital Management Group Equity -9.1%
NGL Energy Partners LP Equity -5.2%
Endo International PLC 6.0 7/23 Bond -5.1%
Energy Transfer LP Equity -1.8%
Blackstone Group Inc 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 fees 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. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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