JPMorgan Senior Secured Loan Fund has published results covering the period from its launch in December 2013 to the end of January 2015. They say they got the money they raised in the initial offer invested by the end of January 2014 and, from then until the end of the period, the fund produced a return of -1.7%. The total return to shareholders who subscribed for ordinary shares in the initial offering was -2.0%. They have paid two dividends totalling 3.4p so far for the period and plan to pay a final dividend of 1.6p to bring the total for the period to 5p, in line with projections at the time of the company’s launch. Revenue was 4.81p though, so part of this will come from capital.
The statement says the negative returns are primarily the result of the impact of currency movements and the Company’s investment portfolio provided a positive return in US Dollar terms during the period. This initially confused us – surely the dollar strengthened and this should have been good news – but it turns out that they hedged the currency exposure. Had this been done perfectly there would have been no impact on the Sterling NAV from the exchange rate but, having read the statement a couple of times, we think they are saying that something went wrong around the time of the deployment of their US dollar borrowings and this ended up hurting the NAV.
However they also acknowledge that the portfolio’s performance was driven primarily by its exposure to the energy sector, which suffered heavily in late 2014 following a collapse in the price of oil. The manager says a combination of being both overweight and having the emphasis on higher yielding exploration and production and energy service loans, undermined performance. The negative contribution from the holdings in the Energy sector accounted for the entire underperformance as the balance of the portfolio modestly outperformed the market. They believe that the portfolio’s positions in the Energy sector are generally from issuers with high quality assets and moderate leverage, that they expect to weather a downturn in energy prices, although they say a prolonged and severe decline in prices could result in some defaults.
JPSL : JPMorgan Senior Secured loan hit by energy exposure and hedging problems