The Canyon Value Realization Fund (CVRF), the $6.7 billion fund managed by Canyon Capital Advisors LLC, lost 0.55% in July bringing it to a 4.7% gain for the year through the end of July, putting it behind the S&P 500 (up 5.66% over the same period) but well ahead of other benchmarks.

“In July, risk assets sold off on a mixture of weak earnings, geopolitical tension, and good economic news in the US (which seemingly proved to be bad news for security prices),” says the recent CVRF letter to investors.

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Canyon’s large, ‘idiosyncratic’ bond holdings outperform benchmarks

Canyon Value Realization Fund has a large fixed income portfolio that comprises 67% of invested capital, but unlike many bond indexes that lost value in July, the fund’s bonds, loans, and RMBS contributed 5bp, 10bp, and 30bp respectively to fund performance, outperformance that CVRF attributes to the short duration and ‘idiosyncratic complexion’. RMBS sales have proven to be a big winner for CVRF all year, including 1.6% gross in July, and CVRF says that it thinks that there is still a lot of value to be had from its remaining holdings.

CVRF municipal bond holdings were flat in July, but the fund says that it used the higher levels of volatility during the month to trade around positions and increase exposure to some investments that it still believes are being undervalued by the market.

Equities detract 100bp from Canyon Value Realization Fund performance

But Canyon Value Realization Fund was down for the month because of losses taken in its equity portfolio toward the end of the month, detracting 100bp from the month’s performance. While the July letter doesn’t name any specific companies that were responsible for the month’s losses, it says that its investments in distressed companies, event driven trades (involving both equities and corporate debt), and value stocks have faced higher volatility that has continued into August.

The fund’s other investment, including convertible bonds, structured credit, and hedges, were flat for the month.

CVRF Head of Risk Management departs

Canyon Value Realization Fund’s July letter also notes that Head of Risk Management Wayne Dahl left the company in July to become the Chief Risk Officer at Prosiris Capital Management. Senior portfolio manager Soon Pho and Head Equity Trader Chris Heine have taken over Dahl’s responsibilities while the Canyon Capital looks for a permanent replacement.