Uncategorized
A little risk again helps managers break into the Top 100
admin | June 7, 2019
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.
The best total returns on CLO leveraged loan portfolios for the three months ending in May again went to managers that took a little more than average risk. The APS CLO Total Return Top 100 beat the S&P/LSTA index by an average of 50 bp while the average deal below the Top 100 lost by 8 bp. Anchorage Capital Group and CIFC Asset Management placed nine deals in the Top 100 and led a list of 41 managers putting deals on the board.
Cumulative returns against the S&P/LSTA ranged from +3.04% to – 2.73%
Cumulative 3-month returns through May in the APS CLO Total Return Top 100 ranged from 3.04% TO 0.31% above the index while returns below the Top 100 ranged from 0.31% above to 2.73% below (Exhibit 1).
Portfolios in the Top 100 for May showed an average life-to-date market beta of 1.01, or a level of riskiness slightly greater than the average loan in the S&P/LSTA. Portfolios below the Top 100 showed an average beta of 0.90. This is the second month in a row that a higher beta helped deals break into the Top 100.
Managers taking a little extra risk rode a rally in leverage loans as the average price rose from $96.41 on February 20 to $97.43 on May 20. Spreads on leverage loans measured by the yield difference between the S&P 100 B/BB index and 1-month LIBOR tightened from 359 bp to 342 bp.
APS tracks monthly returns on all CLO loan portfolios starting three months after deal pricing. Returns include loan price performance, trading gains and losses, receipt and reinvestment of cash and accrued interest. CLO reporting periods vary widely, so APS matches return on the S&P/LSTA index to each CLO’s reporting period and then subtracts index performance. Performance for May includes cumulative net returns on 696 CLO portfolios for the three most recent reporting periods ending May 20.
APS measures market beta over the full life of a CLO deal, so the beta going into the most recent 3-month period may not accurately reflect the riskiness of a CLO portfolio if the manager changed portfolio strategy. The beta does show the manager’s historic average risk relative to the broad market.
Exhibit 1: The APS CLO Total Return Top 100 for May 2019
Note: 3M shows estimated returns on the CLO leveraged loan portfolio net of returns over the same period on the S&P/LSTA index. Alpha shows average excess return in basis points per month over the life of the deal usually starting six months after pricing. Beta shows the usual return in the CLO leveraged loan portfolio for a 1% return in the S&P/LSTA index. Deals with no alpha and no beta had less than 18 months of performance. Source: Amherst Pierpont Securities
Anchorage and CIFC lead
Anchorage Capital Group and CIFC Asset Management led a list of 41 managers placing nine portfolios in the Top 100 (Exhibit 2). Anchorage placed all of its active deals with at least three months of performance, while CIFC placed nine of 15. Apollo Global Management and Prudential Financial followed, with Brigade Capital Management and Triumph Capital Advisors tied for fifth.
Manager performance over time should reflect both total portfolio risk, or beta, and ability to generate excess return through different market conditions, or alpha.
Exhibit 2: The managers of the Top 100
Source: Amherst Pierpont Securities
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2023 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
