TwentyFour Income Fund eyes US CLO market
TwentyFour Income Fund (TFIF) is considering investing in the US collateralised loan obligation (CLO) market, which it believes may present an opportunity as the country’s economy evolves.
The fund typically invests in West European, high-yield floating rate asset-backed securities (ABS), such as mortgage-backed securities and CLOs.
Aza Teeuwen, partner and co-head of asset-backed securities, said that the fund’s current CLO portfolio is mainly within continental Europe, exposed to sectors such as healthcare, pharmaceuticals and business services.
“The European Central Bank has been very active in cutting rates and made debt a lot more affordable for corporates,” he told Alternative Credit Investor.
“Over the past 12 months, every chief financial officer that could, has refinanced company debt.
“The 2028 vintage in this market is already refinancing and extending maturities, so that gives us quite a positive view on both affordability and upcoming maturities.
Read more: TwentyFour Income Fund reports record dividend after bumper year for ABS
“We think corporate defaults will pick up, we’ve seen virtually none in the past few years. But you’re below historical averages.”
Despite TFIF’s relatively bullish outlook on Europe’s CLO market, Teeuwen said that they are “looking at CLOs as a more global market nowadays”.
“I think the market has significantly developed over the past two to three years,” he added.
“European CLOs are a lot cheaper than US peers but that could change, especially as the US economy shifts. The US market is four times the size of the European market. US CLOs are an opportunity for us.”
TFIF gives investors the chance to sell their shares back to the company at a discount to net asset value (NAV) every three years. The latest realisation opportunity was announced in August this year, with distributions set to be made by November. The company has raised money at two of the previous three realisations and TFIF is currently trading at a premium of 1.86 per cent.
In July this year, the fund reported a total NAV return per share of 13.6 per cent in its latest annual results and produced a full-year dividend of a record high of 11.07p, ahead of the 8p target and equating to a 10 per cent yield.
Deutsche Numis analysts noted that TFIF is one of the few investment companies to trade on a premium to NAV, despite the headwinds faced by the wider sector.
Read more: First-time CLO managers preparing to enter European market
