Contributions to performance came from a broad range of sectors and securities. A key contribution came from a stake in diversified media and entertainment company CC Media Holdings/Clear Channel Communications, which managed decent revenue gains despite the slow-growth economic environment. A number of other media firms contributed to performance for the quarter, including stakes in Cumulus Media and Univision Communications, among others. Electronic payment processor First Data Corp and energy services firm Frac Tech International were other notable contributors.
Only a handful of positions detracted from absolute performance. Coated paper maker NewPage Group continued to struggle with falling paper demand after emerging from bankruptcy late in 2012. Securities issued by Canadian land developer Brookfield Residential Properties, Freescale Semiconductor, and mining firm Thompson Creek Metals detracted modestly.
We are positive on floating-rate securities going forward, particularly relative to other taxable fixed-income investments. That is because yield spreads are comparatively attractive while default rates remain in the neighborhood of historic lows. In addition, floating-rate securities are also particularly appealing for investors who believe that interest rates are likely to rise from their current record low levels. With bond yields near absolute historical lows, room for price gains on fixed-rate securities is less and risk from rising interest rates is greater than in recent years. Unlike traditional bonds, floating-rate securities see their interest payouts adjust higher when rates rise. Furthermore, rising interest rates are typically associated with better economic growth, which would benefit the credit quality of leveraged loan issuers. Regardless of the market backdrop, we believe leveraged loans can be an integral part of investors' fixed-income portfolios due to their attractive yields, senior status in the capital structure, and protection they offer from a rising interest rate environment given their adjustable-rate structure.
