Honeycomb fund reveals portfolio mix and bad debt losses

The investment trust has is increasing disclosure amid strong asset performance.

The £497m Honeycomb fund, managed by Pollen Street Capital, has unveiled its greatest level of disclosure to date giving a flavour to its asset mix and bad debt losses.

Overall gross investment assets in the fund now stand at £497m at the end of June. This represents £8m of equity and £489m in credit assets.

Consumer loans make up about 60 per cent of the credit portfolio at £294m. Within the consumer portfolio £201m of this is loans that either have structural protection from platforms having first loss equity ahead of the fund or, Pollen Street says, the firm have acquired a seasoned portfolio showing “predictable” cash flows. The remainder of the portfolio is loans originated by the Pollen Street through partners. 

Next, property loans represent most of the rest of the credit assets (33 per cent) at £159m. This is primarily second charge mortgages significantly seasoned acquired from banks and / or other specialist lenders. Pollen Street says these mortgages have an average loan to value (LTV) of under 65 per cent (combining the first and second charge) and have and average seasoning of over ten years.

It says all of the credit assets are performing well with the consumer portfolio's income yield (trailing last 12 months) at 9.8 per cent and bad debts (excluding IFRS 9 stage 1 provisions) of 1.7 per cent. This has generated a risk adjusted yield of 8.1 per cent. On the property side of the credit portfolio, the income yield (again trailing the last 12 months) has been 14.5 per cent with bad debts (again excluding IFRS 9 stage 1) of 0.1 per cent generating a risk adjusted yield of 14.4 per cent. 

SME loans only represent £36m (7 per cent) of the portfolio with an income yield on the existing portfolio is 7.3 per cent with bad debts of 0.1 per cent giving risk adjusted yield of 7.2 per cent.

The portfolio performance is strong, according to analysts at Liberum and Numis,  the fund’s net asset value (NAV) at 30 June 2018 was 1,016.1p per share (IFRS 9 basis), which represents a return of 0.6% in the month. The NAV total return for H1 2018 was 4.5% (3.8% after adjusting for the effect of IFRS 9).

Honeycomb looks set to deliver another year of strong performance in 2018 following returns of 7.8 per cent and 9.1 per cent in 2016 and 2017, respectively, Liberum says.

“The improved disclosure in the June monthly report sheds further light on the strength of the underlying portfolio performance. The bad debt expense of c.1% across the portfolio is well below the level experienced by the peer group and is the key reason for the fund's superior performance to date. This reflects the manager's financial services expertise and differentiated origination capabilities,” Liberum said.

“It is encouraging to see continued consistent performance from Honeycomb and increased portfolio disclosure, which will make it easier for investors to understand the drivers of returns and credit performance of each asset class. We would welcome similar disclosures from other funds,” Numis said.

The fund trades on a 11 per cent premium to NAV.