Alcentra favouring Europe – Alcentra European Floating Rate Income Fund‘s results for the year ended 31 March 2018 show that it delivered an NAV uplift from 104.14p as at 31 March 2017 to 104.55p as at 31 March 2018. Including dividends, the fund delivered an NAV total return of 5.0% and a share price total return of 0.9%. The company has outperformed both US and European loan indices.
They have been buying back shares, 11,277,425 over the course of this period, and cancelling these. Going forward, they plan to hold these in treasury and reissue them when possible.
Prices were weaker in Q1 as both more bonds were issued and some investors withdrew money from the market. The manager says “At present, UK interest rates of 0.5% do not make a significant contribution to floating rate returns, or indeed have a significant negative impact on fixed rate returns in other credit portfolios. But there is increasing speculation that the potential for increased UK inflation will see further rate rises to come over the next year. The most immediate boost to the share price is likely to come from the development of this rate rise scenario.” Defaults have remained low in Europe, with the latest reading at 1.18% for March 2018.
The weighted average yield on the portfolio is 4.87%. Spreads are lower across most credit markets over the past year, but the managers believe the relative value in European loans still looks attractive to them versus the US loan market (Q1 2018 new issue spreads were 3.87% for European single B rated loans versus 3.58% for the US) and the high yield bond market. As a result, they are lightly positioned in both US loans and high yield at present.
AEFS : Alcentra favouring Europe