By Daniel Lanyon on 6th September 2016
Research from Numis Securities highlights the few months since the EU referendum result have been a tough time to hold the closed-ended p2p funds.
The two largest p2p and marketplace lending focused closed-ended funds are among the worst performers of all investment trusts listed on the London markets since market fallout from the Brexit vote, according to research by Numis Securities.
It has been 77 days since the seismic vote to leave the European Union and while details from the government as to the details of Brexit are unclear, the effect on markets has been profound with a bout of bearishness from investors.
The major UK equity index the FTSE All Share as well as both corporate and government bond markets have rallied since the result although the star performer for investors has been gold, as data from FE Analytics show.
Performance of indices since Brexit vote.
Source: FE Analytics
This bounce in markets despite the reams of uncertainty now baked in to markets has been in part due to the strength of dollar earnings in the FTSE as well as expectation in fixed income markets that the Bank of England – and perhaps other leading central banks – will deepen quantitative easing and other stimulus measures.
The rising tide has not floated all boats, however, with the two largest funds offering exposure to the P2P and marketplace lending space, seeing a fall in total returns.
The table below shows the total return performance of the best and worst performing investment trusts since the Brexit result.
Best and worst performing investment trusts since Brexit
Source: Numis Securities
The best performing funds have been in Asia/EM, benefitting from both strong local markets (the MSCI Asia ex Japan is up 10% since 23 June in local currency terms) and the weakness of Sterling, down 10 per cent versus the US dollar. Technology and biotech has also rallied after a weak start to the year.
The weakest performer is a JP Morgan’s UK Mid Cap fund - unsurprising given that the mid and small caps have been hit by weak sentiment towards UK domestic stocks. The £855m P2P Global Investments trust and the £377m VPC Speciality Lending Investments trust were the next worst performers.
Charles Cade, head of investment company research at Numis Securities, says the past few months have been difficult for the company and the wider P2P industry.
“Concerns have been expressed about the quality of loan books, the effectiveness of credit analysis, growing delinquencies, slowing growth, funding shortfalls and the prospect of greater regulatory scrutiny, while the Lending Club debacle has cast a long shadow. Against this challenging backdrop, full disclosure and transparency are critical to address growing investor concerns. “
Alan Brierley, director of investment company research at Canaccord Genuity says for P2P Global Investments – the largest fund in the space – a significant hit was from an impairment charge of £7.7m.
“If the operational performance requires such a charge in a relatively benign environment, it begs an obvious question of what happens when the credit cycle turns. The next few months are critical for P2PGI as it looks to improve returns.”
“The manager expects increased leverage and coupons, reduced cash drag and an optimization of cash management to drive superior returns. Given the current yield and discount, we retain our HOLD recommendation, although there are clear downside risks if the company fails to deliver.”
The £414m BlackRock Income Strategies Trust also makes it into the list of worst performers. It also is a big investor in P2P, holding one of the largest stakes in the Funding Circle SME Income fund, another listed vehicle, albeit a stronger performer since Brexit.
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.