Los Angeles-based Canyon Capital Advisors, headed by famous hedge fund managers Josh Friedman and Mitch Julis, delivered 1.64% performance in February, bringing its year to date performance up to 2.52%, according to an investor letter reviewed by ValueWalk.
Equity markets bounce, Yellen noted: Canyon
“After a painful January, US equity markets bounced sharply in February, shrugging off EM-related uncertainties and underwhelming US economic data points (helped by Janet Yellen’s more dovish commentary during the month),” the letter said, noting the S&P 500 finished February at an all-time high while the high yield bond market experienced significantly lower volatility. The high yield market was “anchored by falling Treasury yields (approximately 50% of the Barclays US High Yield Index return year-to-date has been attributable to interest rate duration),” the letter noted. “The CVRF portfolio has very little interest rate duration, so returns in February (and YTD) have been driven in large part by positive event catalysts in some of our larger special situation investments.”
Canyon returns steady
With firm assets near $23 billion, the fund, which strives for a low volatility mix of high yield bonds and equities, noted corporate bonds yielded 1.1% of gross returns in February, while equity investments contributed .95% to returns while corporate loans lost .2% from the portfolio and residential mortgage backed securities delivered .15% positive returns on the month.
The significant rise in corporate bond performance was due to unique circumstances. “The largest contributing positions were claims on a liquidating investment bank,” the report noted. “The estate reached a settlement with a prominent creditor that was much more favorable than the market had projected. This should result in an accelerated release of cash from the estate. Holding company claims traded up over 8% during February and are up over 10% year-to-date.” Another major contributor was the investment grade debt of a large cable company which was targeted for an acquisition, leading to contribution to the equity portfolio as well, the letter noted. Other contributors to the equity returns were an auto finance company that is planning its IPO during 2014, and a post-reorganization monoline insurer that has benefited from increased market optimism related to certain litigation recoveries.
In terms of corporate loans that contributed to losses, the key was a European retailer that formally entered insolvency proceedings during February, causing the loans made to the company to trade down.