Funding Circle fund sees higher impairments continue to drag returns

By Daniel Lanyon on Thursday 21 March 2019

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The investment trust saw little improvement in its latest numbers following a flat start to the year.

The Funding Circle SME Income fund saw just a marginally positive performance in February with Net Asset Value growth of just 0.05 per cent as impairments continued to hurt performance.

Impairments reduced NAV returns by 0.7 per cent in February, said analysts at Liberum, in line with the average monthly impairment rate of recent months.

Liberum said 2016 and 2017 UK loan cohorts were the main driver of impairments in the month but that the fund continues to shift away from US loans which now account for 17 per cent of the loan book compared with 25 per cent in July 2018.  

“Given the trend in the performance of the UK loan book, we believe the company will be unable to achieve the guidance of a 4 per cent NAV total return in the 12 months to December 2019,” Liberum said.

“We note commentary that the volatility in NAV returns is expected to persist for several months.”

The fund has stepped up its share buyback activity in recent weeks (average of c.£300k per day) which, Liberum says will provide "a measure of support" for the share price.

“We believe a sustained re-rating is entirely dependent on the company demonstrating how it can achieve NAV returns of 6 per cent plus,” Liberum added. 

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