Funding Circle fund weighed down by a brutal US Christmas

By Oliver Smith on Monday 18 February 2019

Alternative Lending

The investment trust grew just 0.03% in January as defaults, particularly from its US loan book, cut into growth.

The disappointing news continued for Funding Circle this week after two analysts highlighted disappointing growth in the asset value of its SME Income Fund.

In January the value of the fund grew just 0.03%, weighed down by not-unexpectedly higher levels of defaults over the Christmas period.

The total defaults led to a 0.67% impairment charge on the fund for this period.

“The volatility in UK loan performance is expected to continue for a number of months,” wrote Liberum this morning, casting doubt on the fund’s guidance of 4% growth in 2019.

Barring a negative return it reported in June 2018, January’s net asset value growth is the lowest since December 2015.

Canaccord Genuity today continued to hold a “Sell” rating on the fund, publishing a note that reiterated its concern over the fund’s performance and similarly added that they “struggle to reconcile” Funding Circle’s growth guidance.

“In a relatively benign environment, the performance of many [alternative debt funds] has been disappointing, with the actual experience a long way short of target,” Canaccord wrote, questioning how Funding Circle’s Income Fund would perform if the economic situation worsened.

The listed fund, which is a pool of loans originated on Funding Circle’s platform, went public in 2015 at a price of 100p, yet today trades at a 10.4% discount to its net asset value and down 14.6% since it first listed at 85.4p.

The fund has been trying to turn the situation around, firstly by rebalancing its portfolio away from US assets and towards UK and European assets.

It also launched a share buyback scheme which has since purchased 2.2m shares, a turnaround from the fund having issued shares last year, and a board-level review with Funding Circle of the fund’s returns.

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