Canyon Capital Advisors, managed by Mitchell Julis and Joshua Friedman, has increased its cash holdings yet again as it sees the rest of the market growing ever more complacent about the prospects of low interest rates extending well into the future, according to a letter to investors reviewed by ValueWalk. In the Canyon Value Realization Fund’s (CVRF) quarterly letter we found out that its cash position had already gone up to 14% of assets, compared to 6% of assets a year earlier, and just one month later that has been increased to 17%. The CVRF is up 0.46% in May and 3.60% year-to-date, with $6.5 billion assets under management.
Canyon Capital sells an additional $180 million RMBS since end of 1Q14
“We have reduced overall exposure, raising cash to 17% of CVRF. This dry powder should give us the flexibility to capitalize on any market correction (and function as a volatility dampener). We continue to favor short duration special situations where near-term events can dominate the overall direction of the market,” the fund wrote in its May commentary. Canyon has continued to reduce exposure to residential mortgage-backed securities, having sold $180 million since the end of 1Q14 ($380 million since the beginning of the year), but its selective approach has kept the credit quality of its holdings high. Canyon’s RMBS holdings have generated more than 12% IRR year-to-date, beating the Amherst Non-Agency RMBS Index which is up 5.5% over the same period. RMBS added 45 basis points gross in May, nearly the fund’s entire gains for the month. Municipal bonds contributed another 5 basis points, while aircraft-related securities, convertibles, structured credit, and hedges were all flat.
Corporate positions nearly flat in May
Corporate positions (including stocks, bonds, and loans) only added 15 basis points to the fund in May. The letter mentions claims against a liquidating investment bank that has continued to be a winning position for Canyon and loans to a Spanish commercial real estate company. The loans appreciated in May ahead of an expected asset sale which was then announced in early June. The real estate company is also restructuring its debt with a large cash paydown and a switch to shorter-dated debt offered above market price but below par. Canyon said that its biggest losses among corporate positions were gaming companies, one of which is “in the midst of addressing its troubled balance sheet through capital markets and legal maneuvers.”