Investment trust debt sectors

As of yet most investment trusts in the debt sectors have not moved up to reflect the fact that, interest rates have gone up. The few that have have haven’t seen a significant increase in there share price.
Some will take time to capture the increase in interest rates. Some like VSL will capture them immediately. There loans are all floating rates. Interest charged in December 2021 was 10.5% its now 13.8%. That allows for a significant increase in dividends (ignoring the fact that there’s vote coming up for a wind down)
I also bought riverstone Credit Opportunities a rather small company with a realively large spread. Loans are roughly 2 years long and some are floating. Up 2.5% despite the spread. Purchased a month ago. Dividends have been 7cents now 8cents plus 1cent special.

BioPharma which has some floating and has paid very large special dividend this year. (Most years in fact but this is the biggest) Discount small 5 to 6% and not narrowing. Not long since it was on a premium.

Pollen next purchase…possibly!! Presently on 45% discount and 14% dividend. The dividend will be reduced to 11% this year as pollen is a product of a merger some shareholders didn’t receive a dividend for 2 years. Extremely complex investment trust after the merger. Probably the cause of the discount.
These type of investments don’t correlate exactly to the equity market. Possibly another reason to buy.
All of the latter pay dividends as streamed interest so I benefit from the £5,000 starter savings tax allowance. Only a few in the debt sectors bother streaming dividends as interest.

Do your own research on wherever they will benefit from increased interest rates.
Note I am really only looking in debt - direct lending sector. There are 3 investment trust debt sectors

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Interesting. I’ve been keeping an eye on trusts in the three AIC debt sectors.

I may add one or two in my shorter-term, trading-focused account if the right opportunity presents itself and once I have a much better understanding.

I have a long time horizon, so I’m focusing on total return over income for the time-being. I also try to restrain myself from investing in relatively exotic trusts. If in doubt, do nowt is my mantra.

The article below, albeit a few years old, sums up my feelings on debt trusts.

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Riverstone credit opportunity
And biopharma are not particularly exotic/difficult to understand and they are not particularly opaque.
Biopharma is considered low risk but I am not so sure. Small portfolio and some loans are particularly large.
VSL is going into wind down that may result in some extra returns namely the discount. I emphasize may. Should would be a better way of putting it. It basically lends to fintechs.
Pollen is a pain to understand.
I can’t move my investment to trading 212 as I have no id documents at the moment. So whatever I invest in next will be through Hargreaves Lansdowne. Freetrade don’t have the above other than VSL.

PS bought international personal finance bond via IPO. (No charges via IPO)
12% 2027 also covered by 5,000 starter savings tax allowance.
Decision to buy based on international personal finance doing well. Paid previous bond holders during COVID. Debt comes before dividends.

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You’re not wrong. Pollen Street/Honeycomb is especially tricky to understand.

The likes of BIPS, NCYF and BPCR are easier but I’m wary of straying outside my circle of competence so I’m sticking to equities for now.

I’ve hopefully got a long time left to properly get my head around fixed income, Reits, direct infrastructure, hedge funds, leasing, royalties and so on.

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Thanks for this, it is tempting. An asset backed investment with a potential high yield. I would need to understand the underlying assets / cash flow risks in a bit more detail, but at a quick glance this is appealing. The LTV of the underlying debt is also at a decent rate that you would expect to cover any losses up to a 40% downturn.

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It is an old article.
VSL has a 76% share price return over 5 years. And is still on 15% discount. Decent

Those type of IT were in my radar for some time. This was my “favorite”:

You nail almost all of them. One of the reasons, I didn’t move on them, was the credit risk, due to raising environment of the interest rates and a potential recession in the horizon. Both scenarios increase the possibilities of higher loan delinquencies. Inflation risk never was a big issue for me in this sector.

Not so. It can be very risky. Although some could have a steady legacy stream of income, biopharma sector invest millions in R&D, to sometimes no return, due to several issues, not passing trials and/or the regulation (just see the COVID vaccines/pills examples).

Also some medicines are found to have serious side effects, and they are forced to pay large fines and indemnities to their clients.

They also face regular political risk due to their huge prices, mostly in innovative treatments or niche illness treatments (smaller potential customer target).

BioPharma was other favorite of mine. Pollen didn’t convinced me, although if I remember correctly, it had an interesting portfolio. Also the AIC’s sector Debt Structured Finance didn’t convinced me, due to be too much exotic for me (e.g. CLO). But there could be other gems on debt ITs, if you are interested in that asset class (debt: loan/bond). :wink:

EDIT: Post about the Biopharma sector not the Biopharma IT.

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Biopharma say they lend against drugs in production for instance. They own the drug if the company defaults.
They don’t lend against drugs that haven’t been proven. The company they lend to may use the money for research and development but they must have collateral equal to the loan.

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Riverstone credit opportunity is looking good. Dividend increased to 8cents from 7cents and a 1cent special.
Biopharma is paying bigger specials this financial year.

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I were talking about the Biopharma sector, as I interpreted you were talking about the Biopharma sector, now understood that you were talking about the Biopharma IT. :wink:

I edited my previous post accordingly.

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Thanks for sharing your insights on investment trusts in the debt sectors.

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Another interesting one.
RM Infrastructure
Market cap 96 million
Dividend 8%

Downers
Spread today 4.5%
Only 12% discount
I have set an alert on this. Want a bigger discount to make up for the spread. Which will also result in a better dividend.

Edit just noticed they expect to increase the dividend to 7p from 6.5p due to higher interest rates.
To those who might benefit from it dividends are paid as streamed interest.

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Congrats @JB2 , almost there in my shortlist of Debt ITs. :wink:

To end the suspense, my shortlist contained the following Debt ITs, it was made in the last months of 2021 (as it have more than 1 year, it could be outdated, since then, I didn’t follow up):

Name ISIN
VPC Specialty Lending Investments PLC Ord (VSL) GB00BVG6X439
Honeycomb Investment Trust Plc (HONY) GB00BYZV3G25
Riverstone Credit Opportunities Income Plc (RCOI) GB00BJHPS390
Real Estate Credit Investments Limited (RECI) GB00B0HW5366
RM Infrastructure Income PLC (RMII) GB00BYMTBG55
BioPharma Credit PLC (BPCR) GB00BDGKMY29
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Honeycombe is now pollen after the merger and is almost impossible to understand!
I assume you knew the first part.

I had seen something about the change of the name of Honeycomb to Pollen, probably in AIC site, but I didn’t know that they also merged.

Did you saw the only IT that you didn’t mentioned before? :wink:
(it’s outside the AIC Debt sectors)

ICG-Longbow Senior Secured UK Property Debt Invest

Big discount
Big dividend??

This is in wind down
It has 5 properties loans outstanding. They are all up for sale to pay ICG-Longbow back. The average is 67% loan to value. They are still getting interest payments.

Big spread

Nope. This one:

(20 characters)

I added ICG-LONGBOW before i saw

RECI property debt. I have looked at it. But the discount is to small But i noted it regularly goes to a premium.
Nice dividend.
One to watch.

Will VSL wind down? What happens in this type of situation? The shares will to go zero and won’t be tradeable when the decision is made to wind down?

As investments are sold off you will get your share as a dividend payment.
Towards the end they may delist to save money but still pay you.
The problem with this investment trust is they own shares in the Companies they lend to but most are not listed so have no idea how they can sell them.
44% of the NAV is shares in companies so i am told. Edit below as the figures are wrong.
The companies are fintechs which have taken a hammering on the stockmarket and the unlisted companies are valued relative to them.
They have fallen to far and i think they will start to recover. I am using international personal finance as a comparison company whose share price is recovering rapidly.
Unlike investment trusts which are equity based these trusts take a while to wind down. In the meantime you get a tasty dividend. Although they will fall as loans come to an end and the capital is returned.

The vote has yet to take place but they are 85% institution owned and some of thèm are the ones pushing for a wind down…so probably is the answer. I am hoping not. I prefer the long view a near 10% dividend.
The institute (at least some of them) are taking the jam today view. IE you get the discount and the dividend in-between. If we go into a recession its Probable they will wait till its over before selling. They are required to get the best price possible.

Opps not 44% invested in shares. See below.
“According to the October factsheet, 64% of assets were in debt, with 7% in equity, 16% in preferred stock, 3% in warrants, and 9% in convertible debt. The weighted average remaining life on loans in the portfolio was 17.6 months.”

General research on VSL
https://www.theaic.co.uk/companydata/vpc-specialty-lending-investments/research

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