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P2P Global Investments, VPC Specialty Lending et al hold up as markets plummet in Brexit sell off




By Daniel Lanyon on 24th June 2016

Source: https://goo.gl/ZIvQdo

The Brexit vote has prompted chaos in financial markets as investors jettison UK equities.  At the peak of selling this morning the FTSE 100 had lost 8 per cent but at the time of writing this has moved back to 4.66 per cent.  The FTSE 250 has been hit harder, being currently down more than 7 per cent.

For the P2P/market place lending investment trusts this has meant falls also. Nearly all stocks in the London market have sold off, with the exception gold mining firms which have rallied along with physical gold. However the P2P/market place lending trusts  have tended to fall less than the broader market demonstrating that amongst all of the index-selling going on someone is buying them up.

The largest trust in the space, the £871m P2P Global Investments has fallen just 1.37 per cent, the FTSE 250 is down six times that. It has broad geographical exposure with about 60 per cent of its portfolio exposed to US consumer loans and the rest split into European SME, real estate and consumer loans as well as some small Australasian exposure.

Performance of share price today

Source: Google

VPC Specialty Lending, which at £379m is not big enough to be in the FTSE 250, and therefore immune from passive fund trading of the index,  is down 3.20 per cent while the broader market was down 5.17 per cent. It has 26 per cent in the UK and the rest in the US, alongside 4 per cent weighting to cash.

Of course while both trusts have international exposure and therefore geographical diversification beyond the Brexit-induced sell off, they both have hedged overseas earnings back to sterling and therefore would take a hit from this morning’s crash in pound. 

The Ranger Direct Lending trust, which has a US dollar income stream that is unhedged, should see a boost from a weaker pound, says Cormac Leech, analyst at Liberum. It also sold off this mornging but just 0.51 per cent.

Performance of share price today

Source: Google

"About 98 per cent of the assets are in dollars so sterling weakness makes no sense to not go up. The share pirce should go up.  It is a bargain," he said.

"Part of them selling off might be because they are less liquid than most of the other stocks. In this market you sell the most liquid stocks." 

Of course, in the event of a longer term period of economic weakness, things could change, Leech says, but he doesn’t think this will occur.

"I'm skeptical that we will see a recession. The short term knee-jerk selling won’t last and it is good buying opportunity to buy. If you go back to 2008 it was like this every day. From a market point of view it is a big deal but it is not a massive deal, it is more a political event. Maybe longer term there could be impacts but we just don't know yet."

"The market is actually higher than it was in mid-February. Also, any economic weakness could lead to quantitative easing [QE] and rates cuts. The political ramifications are much more significant than the economic or financial. "

 

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