View the article online at http://citywire.co.uk/money/article/a886187
TwentyFour raises funds for battered bonds and loans
Bond manager Ben Hayward looks forward to invest an extra £31 million for the high yielding TwentyFour Income Fund.
TwentyFour Income (TFIF ), a high yielding fund that invests in floating rate bonds and loans, has raised more money from investors to exploit the opportunities created by market turbulence.
The Guernsey-based investment company raised £37.7 million in a share placing, £6.6 million of which will go to shareholders who chose to exit their holding before the fund's third anniversary.
That leaves £31.1 million, or 10% more capital, for portfolio manager Ben Hayward to expand the portfolio of mortgage bonds and debt bundles known as collateralised loan obligations (CLOs). Unlike conventional bonds, which pay fixed coupons, these offer a floating rate of interest which should rise as the cost of borrowing rises in the US and UK.
In a statement Hayward described current conditions as the ‘most attractive investment opportunity we have seen in asset-backed securities (ABS) for a number of years’.
However, that partly reflects the sell-off in bond markets since last autumn. Like other debt funds, TwentyFour Income has had a difficult time and its share price is down 10% over one year in response to the uncertainty over US interest rates and the spill-over from the turmoil in high yield 'junk' bonds.
That decline has boosted the fund's yield to 6.7% though, based on quarterly dividends of at least 6p a year. It recently reduced its targeted total annual return from capital growth and income to 6-9% from 7-10%. The net asset value has advanced by 20.1% since its launch in March 2013, equivalent to 6.3% a year. The shares trade at a 4.5% premium above NAV having stood as high as 9% last October.
‘TwentyFour views the current market as the most attractive investment opportunity we have seen in ABS for a number of years,’ Hayward added, pointing to the low rates of default of 0-2-0.3% in its markets.
‘We believe that the fundamentals have improved since the fund’s launch and yet the value on offer has not changed. In our view the fund is well positioned to deliver another three years of income returns for its shareholders,’ he said.
Nathan Sweeney, senior investment manager at Architas, a 'multi-manager' that invests in other groups' funds, said he had backed the fund raising.
'We currently have a bias towards income generating assets in this low growth environment so are always looking for this type of opportunity.'
'With an attractive current yield we want to take advantage of the opportunity that recent volatility has offered by entering at what we believe is a time of reasonable valuations,' he added.
The 30.11 million new TFIF shares will be issued at an average of the price paid to shareholders who sold out at the three-year exit. They will start trading on 8 March and are part of a placing programme that could see the £323 million fund issue a further 263 million shares over the next year.
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