TwentyFour Select Monthly Income NAV slips in volatile markets – Over the year ended 30 September 2018, TwentyFour Select Monthly Income’s NAV fell by 3.4%. Dividends totalled 6.55p, barely changed from the 6.56p paid for the year before.. The chairperson notes that, as US inflation moved higher in January 2018, interest rate markets became concerned that the Federal Reserve (“Fed”) would continue to increase the Federal Funds rate. In response, US Treasury yields spiked aggressively higher, with the 10yr yield rising from 2.4% at the start of the year to over 3% by the end of April. This also spooked credit and equity markets.
The strong US Dollar also negatively impacted emerging markets, which sold off aggressively, causing contagion into developed markets. European assets also suffered from the fallout of the Italian general election, where an anti-establishment coalition was formed, and from the weak coalition government in Germany, while the ongoing Brexit negotiations pressurised sterling credit markets.
Extract from the managers’ report
“Investor sentiment remained very positive for the early part of the financial year; however, the spike in US wage data in January 2018, and subsequent sell off in treasury yields, caused correlations to breakdown down and since then, a combination of geopolitical risks, flattening yield curve and a hiking Fed, emerging market volatility, Euro political risks and Brexit risks in the UK have all contributed to stiff headwinds for credit markets.
The headwinds did provide a number of opportunities for the portfolio managers, particularly in the Collateralised Loan Obligation (“CLO”) and Bank sectors, while the widening in Insurance bonds, especially in the long dated Restricted Tier 1 bonds issued in the buyout markets in 2017, also provided the PMs with new places to look for value.
The net decline seen in total comprehensive income, for the year to 30 September 2018, was due to the fall in the mark-to-market valuation of the company’s assets over that 12 month period. As spreads widened on the assets, as referenced in the chairperson’s statement, the price was pushed lower and reflected the general risk off sentiment that has prevailed for most of 2018.
Over the same period, from 30 September 2017 to 30 September 2018, the price on the ICE BofAML European High Yield Index fell by over 3 points, the price on the ICE BofAML Sterling High Yield Index fell by almost 4 points and the price of the ICE BofAML Contingent Capital Index fell by almost 5 points. By comparison, the NAV of the company declined by just over 3 points, mostly due to the portfolio managers focusing on shorter duration assets, in comparison to the longer dated indices.
The total return for the year of 3.47% (NAV per share, including dividends paid), with positive contributions from all sectors, is very pleasing in the context of a very difficult 2018 for credit markets. By comparison, the total return for the Euro High Yield (“HY”) market is 0.90%, GBP HY has returned 2.65% and the Contingent Convertible (“CoCo”) bond index has returned 1.50%.”
SMIF : TwentyFour Select Monthly Income NAV slips in volatile markets
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