Additional Yield Information and Investment Update

11 August 2022

TWENTYFOUR INCOME FUND LIMITED
(the “Company”)
(a non-cellular company limited by shares incorporated in the Island of Guernsey under the Companies (Guernsey) Law 2008, as amended, with registered number 56128 and registered as a Registered Closed-ended Collective Investment Scheme with the Guernsey Financial Services Commission. LEI 549300CCEV00IH2SU369)

Additional Yield Information and Investment Update

The Board of Directors of TwentyFour Income Fund Limited (the "Company") announces that it has published additional information on the portfolio’s yield in its latest factsheet for the month ending 31 July 2022. This additional data will be published on an ongoing basis.

With interest rates having risen sharply and expectations of further rises going forward, the Company has published an additional Forward Yield to Maturity alongside the existing Current Mark-to-Market Yield and the Purchase Yield, to better illustrate the likely returns that the portfolio will generate as rates increase further.

The Current Mark-to-Market Yield that the Company has published to date is calculated each month using the prevailing benchmark Sonia rate that the underlying floating rate investments accrue against. Historically, with very low interest rates and an expectation of the Sonia rate remaining low over the investment timeframe of the assets, this was a good indicator of the likely future returns.

However, with rates moving higher, using the current Sonia rate is not such an informative indicator of returns.  The Forward Yield to Maturity uses the projected forward Sonia curve over the life of the Company’s investments to provide a better indication of likely future returns. So whilst the Current Mark-to-Market yield at the end of July (prior to the Bank of England’s latest 0.5% base rate increase) was calculated at 13.0%, the Forward Yield to Maturity was calculated at 14.9%, to reflect the expectation of further base rate rises, and therefore greater returns for the Company’s floating rate investments.

Investment Update

Market conditions in the past three to four months have been characterised by slowing economic conditions and recessionary fears, driven primarily by high levels of inflation which have been exacerbated by the ongoing Russian invasion of Ukraine, which has additionally added much higher levels of volatility to markets. As mentioned above, this has led to Central Banks raising interest rates far more quickly than was expected earlier in the year in at attempt to control the demand side of the inflation equation. 

Conventionally, the expectation would have been for credit spreads to contract as interest rates rose, but with the uncertainty of the war in Ukraine’s effect on global supply chains, particularly for energy and food, the pace of interest rate rises have led to expectations of a recession, and this has subsequently caused credit spreads to widen across the board rather than tighten. At their peak, they reached levels not seen since the Global Financial Crisis, although have now stabilised and a recovery has begun.

However, that leaves risk assets in a position that is rarely seen – with higher credit spreads and higher benchmark rates which are set to rise further, and therefore the opportunity for the Company to lock-in greater returns on current investments, than could have been envisioned. This can already be evidenced in the improvement in the Company’s Purchase Yield which has improved by 1.3% to the end of July 2022 as the Portfolio Manager has added incremental yield, outstripping the 1% rise in base rates over the same timeframe, and will be further boosted by the subsequent 0.5% base rate increase.

Fundamental performance in the portfolio remains strong and structures are robust, having been significantly strengthened since 2008 and therefore any impact of a recession is expected to be minimal on the company’s assets, especially given the compensatory higher returns from investment opportunities at wider spreads as well as higher interest rates.

The board therefore sees current market conditions as an opportunity for the Portfolio Manager to continue to add value for shareholders at ever more attractive yields.

For further information, please contact:

Numis Securities Limited:
Hugh Jonathan+44 (0)20 7260 1000
Nathan Brown

TwentyFour Income Fund Limited:
John Magrath+44 (0)20 7015 8900
Alistair Wilson