During the six month period ended 30 June 2016, Carador Income Fund generated a total NAV return of 2.68%. The NAV started the year at US$0.7231 and ended the first half at US$0.6908, a 4.47% decline, although they also paid a total of $0.0475 per share in dividends over the period. The shares closed the first half of 2016 at US$0.6250, a 9.53% discount to the NAV at 30 June 2016. The annualised historic dividend yield based on the last declared dividends was 15.60%.
The statement says the first half of 2016 was the best 6-month stretch for sub-investment grade products in years but the stellar returns belie the dramatic swing that began in February. During the first six weeks of the year, the markets continued the free fall that began during the second half of 2015. The high yield market then surged 9.30% through June, turning into the best start to a year since 2009, and marking a 15% recovery from the mid-February low. Loans produced a more modest 4.23% return during the period but senior loans did not fall to the same levels as high yield bonds in 2015. Performance was also very strong in investment grade assets.
The Investment Manager believes it has made significant progress on the portfolio rotation from pre-crisis CLOs to post-crisis deals. They sought to reduce pre-crisis exposure in favourable market conditions and replace those investments with attractive post-crisis opportunities, although certain pre-crisis Income Notes remain strong performers. As at 30 June 2016, the portfolio NAV consists of 65.5% of Income Notes of which 9.3% are in pre-crisis deals.
Within the senior loan market, two notable trends were apparent. First, the rebound in commodity prices boosted the energy and metals & mining sectors. The loan energy sector climbed 13.65% and metals & mining loans gained 15.82%. Second, low-quality paper outperformed after an extended period of high-quality paper outperformance. The lower tier within the Credit Suisse Leveraged Loan Index returned 9.27%, well above the 3.09% return recorded by upper tier loans.
CIFU : Carador NAV return lags stellar sub investment grade market