Direct lending fund hits dividend target, increases average lending yield

The RMDL investment trust has been a consistent performer since it launched back in November 2016 and it has grown its portfolios of loans to SMEs.

Alternative lending investment trusts have been a mixed bag to say the least in recent years but one of the newest portfolios, heading for its three year anniversary later this year,  has delivered on-target dividends and not yet seen a single default in its loan book.

The £112m RM Secured Direct Lending fund also increased its average portfolio yield last year to 8.55 per cent, from 8.23 per cent in 2017, as well as announcing a total annual dividend of 6.5 per cent for 2018.

The fund, which launched in November 2016, offers exposure to alternative lending assets with ticket sizes mostly between £2-10m, mostly on a senior secured basis .  

It’s investment managers say that it continues to have a “strong pipeline of attractive opportunities” in sectors less exposed to the business cycle and that this year's dividend is expected to be covered. Two thirds of its loan book (66 per cent) is in senior secured loans with a weighted average life of 3.42 years.

Norman Crighton, chairman of the fund says since its IPO in 2016, the fund has grown to a portfolio of 35 investments across 14 sectors  with all capital now fully deployed.

“We are pleased with both the rate at which we have allocated our capital and the pipeline of opportunities identified. In the current volatile market, our direct lending strategy offers shareholders capacity to preserve capital, guard against inflation and rising rates, while generating attractive risk-adjusted returns.”

Analysts at investment bank Liberum add that its NAV return in 2018 was in fact c.7 per cent after stripping out mark-to-market losses.

“Volatility in credit markets resulted in mark-to-market declines in the more liquid part of the portfolio. We note this has partially recovered with a valuation uplift of 0.2 cent cent in February.”

“The manager retains a cautious outlook on the wider economy and the portfolio will remain focused on non-cyclical sectors. There has been no financial covenant breaches in the portfolio. We also note the company's expectations that the dividend will continue to be fully covered by net interest income in 2019.”