Stories by Scott Ellis
By Scott Ellis | January 4, 2018
First, Happy New Year to everyone out there! For the first chart of the week of the new year, I’ve taken a deeper look at the potential winners and losers… Read More
By Scott Ellis | November 2, 2017
With the energy markets seemingly rebalanced and oil prices hovering near $55 per barrel, we have decided to take a closer look at the Oil Field Services sector. This subsector is the weakest link in the energy supply chain as these companies largely rely on exploration and drilling capital expenditures. It was the most distressed energy subsector in 2016 and has been the last to recover. Still, enough has transpired to suggest a potential inflection point in fundamentals in 2018 or 2019, with many of the survivors effectively extending their own runways via opportunistic refinancings. Despite the spread compression in 2017, as seen in this week’s chart, this subsector of High Yield Energy still has higher credit spreads than the overall High Yield Energy sector and therefore is worth drilling into further (pun intended).
By Scott Ellis | September 14, 2017
I am certainly not an economist, but when a Barron’s article early in September highlighted an obscure but potentially troubling economic data point, I had to find out more. The Federal Reserve Bank of Philadelphia produces monthly coincident indexes for each of the 50 U.S. states. These monthly indexes describe recent trends and are further combined into a diffusion index value. More specifically, these indexes focus on four state-level indicators to summarize current economic conditions. The variables in this coincident index include nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average) – per the Philadelphia Fed’s website.
By Scott Ellis | July 20, 2017
Many investors are struggling to find attractive investment opportunities in today’s environment. One can choose from waiting on the sidelines in cash, investing in government bonds (10-year U.S. Treasuries 2.3%), investment grade bonds (+105 basis points (bps) in the U.S.), high yield bonds (+439 bps in the U.S.) or equities (S&P 500 Index is up ~10% year-to-date) and other more esoteric and less liquid investments such as private equity, venture capital and real estate. Central bankers around the world have been using their balance sheets to buy the most liquid and least risky investments, and as a result, bringing the yields down significantly. Because of this, investors have been moving further down the risk spectrum in hopes of attaining the same returns they once were able to achieve. The central bankers’ actions have left other investors to fight for the remaining investable assets.
By Scott Ellis | May 25, 2017
It has been a very strong run for the markets since the great recession in 2008/2009. The S&P 500 Index has returned over 200%1 since 12/31/08, and the U.S. High Yield Market is not far behind at over 180% (as measured by the Bank of America Merrill Lynch U.S. High Yield Index). Following such strong runs over the past 8+ years, one has to wonder how much longer this can be sustained.
By Scott Ellis | March 30, 2017
Corporations have a variety of different options when it comes to raising outside capital. In the most basic form, they can issue equity or debt. When corporations elect to raise debt, they can issue it on a secured or unsecured basis and with fixed or floating rates. It is up to the management teams to choose the best option for the company at that time and to preserve its options for the future.
By Scott Ellis | January 26, 2017
The U.S. High Yield market (USHY), as represented by the JP Morgan Domestic High Yield Index, quietly returned almost 19% in 2016, outpacing stocks in the S&P 500 Index, which are up approximately 12%, and the Dow Jones Industrial Average, up approximately 16.5%. There are many constantly changing variables that factor into market returns. However, I wonder if even without being able to identify and correctly forecast every variable, was there a way to predict the odds of an outsized return for the USHY market at the start of 2016?
By Scott Ellis | December 1, 2016
As total return investors, we are always trying to identify undervalued investments that have a catalyst to appreciate to what we believe is fair value. In the current market environment, credit spreads have performed very well across most risk markets this year, and attractive opportunities have become more difficult to identify.