Managers almost catch up with the market through March
admin | April 9, 2021
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.
Nearly half of CLO loan portfolios beat the leveraged loan market from January through March. The average CLO leveraged loan portfolio gained 2.69% and, after adjusting for broad market exposure, or beta, still trailed the market by 6 bp. Smaller managers who selected riskier loans tended to outperform their peers in the first quarter of 2021.
Loan prices remained flat between January and March, ending the run of steadily rising prices in place since last April (Exhibit 1). The loan price index remains above its pre-coronavirus level. After accounting for the various reporting dates of managers, the S&P/LSTA Total Return Index gained 2.67% between January and March. Managers held portfolios with an average beta of 1.03, which meant the average manager should have gained 2.75%. With the actual average performance at 2.69%, the average manager trailed the index by 0.06%.
Exhibit 1: Loan prices hover 3% above their pre-pandemic peak
Source: Bloomberg, Amherst Pierpont Securities
About 48% of the managers led the index, a small uptick from the figures reported by Amherst Pierpont last month (Exhibit 2). Out of the 71 managers with five or more deals tracked for January through March, two delivered alpha greater than 50 bp while none trailed the index by 50 bp or more.
Exhibit 2: Nearly half of managers outperformed the index between January and March
Note: data shows excess return only for active deals.
Source: Amherst Pierpont Securities.
The bid depth and weighted average spread of the portfolio correlated most strongly with recent excess returns (Exhibit 3). Managers who held loans that were less liquid or had higher weighted average spread delivered higher returns. Additionally, higher exposure to ‘Caa1’ loans correlated with more recent excess returns. Interestingly, the larger CLO manager’s AUM, the marginally worse its performance. Overall, managers holding riskier loans tended to outperform.
Exhibit 3: Correlation of portfolio or manager features with recent excess return
Note: data shows the correlation of manager or loan portfolio attribute with managers’ excess return or alpha from January through March only on active deals. Portfolio attributes measured as percentiles.
Source: Amherst Pierpont Securities.
The following managers delivered positive alpha in the market between January and March (Exhibit 5). ZAIS Group, Symphony, and Canaras again top the chart this time. Others in the Top 10 include ICG, Bain Capital, Sculptor, and Apollo, Denali, First Eagle and American Money Management.
Exhibit 5: Alpha leaders in CLO portfolio performance January – March 2021
Note: Performance for managers with five or more deals tracked by APS. Performance attribution starts with calculated total return on the leveraged loan portfolio held in each CLO for the 3-month reporting period ending on the indicated date. CLOs, even with a single manager platform, may vary in reporting period. The analysis matches performance in each period to performance over the identical period in the S&P/LSTA Leveraged Loan Index. Where a deal has at least 18 months of performance history since pricing and no apparent errors in cash flow data, the analysis calculates a deal beta. The deal beta is multiplied by the index return to predict deal return attributable to broad market performance. Where no beta can be calculated, the analysis uses the average beta across each manager’s active deals weighted by the average deal principal balance over time. Any difference between performance attributable to beta and actual performance is attributed to manager alpha.
Source: Amherst Pierpont Securities.
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