TwentyFour Select Monthly hit by challenging market conditions

Over the six months ended 31 March 2016, TwentyFour Select Monthly Income’s net asset value fell from 92.59p to 85.97p and the share price fell from 96.625p to 88.75p. The dividend was maintained at 0.5p per month.

The Chairman says challenging market conditions resulted in a period of high price volatility for the Company’s portfolio assets, with mark-to-market declines exacerbated by extremely poor liquidity in secondary markets but goes on to say the investment composition of the Company continues to meet an acceptable level of diversity and target yield, and there have been no issues in achieving the pre-determined gross monthly dividend of 0.5p per share.

The portfolio manager says there has been some significant volatility in the underlying mark-to-market prices across the asset sectors held in the Company, in particular the Company’s weighting to ABS and exposure to the banking sector (25% as at 31 March 2016). In addition there has been a notable idiosyncratic event surrounding the Novo Banco credit (see below), which has yet to be resolved and that the Company has exposure to. The six months in question have been very challenging for higher beta credit, particularly in the period of mid-Dec to mid-Feb.

With respect to Novo Banco they say, the Bank of Portugal (“BOP”) astonishingly decided that Novo Banco should have a bail-in of senior debt. Astoundingly the debt was not bailed in to the existing bank, but instead removed as a liability and passed to a bad bank, with the BOP selecting just 5 of the 52 available bonds, thereby ignoring the key concept of pari passu. Legal action was therefore inevitable and the reputation of Portugal was severely impaired.

SMIF : TwentyFour Select Monthly hit by challenging market conditions