Portfolio Management Statement

24 Cornhill London EC3V 3ND
   TwentyFour                                  T [phone]
   Asset Management                            F [phone]
                                               www.twentyfouram.com


    TwentyFour Select Monthly Income Fund Limited - 2014 Year End Review      

It has been nine months since the launch of the Select Monthly Income Fund
(SMIF) and as we come to the end of 2014 we thought it would be an ideal
opportunity to look back and reflect on what has been an interesting and
challenging period, but more importantly look forward to the coming year and
validate the composition of the underlying assets. 

Encouragingly the Fund has delivered what it originally intended, which is to
return a minimum distribution of 6% per annum, in a low interest environment,
without compromising underlying credit quality.

Looking back, during the launch and ramp-up period of the Fund (Mar-June)
credit spreads were contracting strongly, so naturally the portfolio managers
were keen to become fully invested in a timely manner in order to satisfy the
month distributions as quickly as possible. As spreads continued their
tightening trend in Q2, a raft of new issuance included a number of weak
credits, leading to a classic case of market indigestion in June. This
coincided with Janet Yellen raising concerns about possible overheating in the
US leveraged loan and high-yield markets due to investors `reach for yield',
during a speech on 18th June.

In addition, towards the end of June as the banks prepared for their Q2
reporting date, there was a clear decline in already poor, market liquidity,
with the secondary trading desks noticeably pulling back the bid levels for
risk. The bid-offer spread continued to widen throughout the summer period, as
the market grew ever more concerned about the deteriorating geo-political
situation and also because of the general global economic slowdown.

Uncertainty surrounding geo-politics took a turn for the worse on 17th July
following the tragic shooting down of a civilian aircraft over Ukraine. This
added to the wider conflicts in the Middle East with the rise of ISIS in Syria
and Northern Iraq and the escalation of hostilities in Gaza. Adding further to
market concerns over that summer period was the uncertainty surrounding the
forthcoming AQR results and tightening of regulatory controls across the
financial sector, while closer to home the strength of the "Yes" campaign in
the Scottish devolution referendum on 18th September increased nervousness. On
a wider global basis concerns about a slow-down in the Chinese economy
intensified with 19 provinces out of 31 recording a slow-down in economic
growth for the first 9 months of 2014, with 3 provinces recording no change and
9 recording a small pick-up. In October the US completed its tapering of the
latest round of QE, while in the Eurozone, the fundamental data showed no
compelling signs of recovery.

Amidst this backdrop of concern and uncertainty, it was no great surprise that
sentiment softened and volatility increased.

The Fund was set up to take advantage of the extra premium available from less
liquid credits but obviously during periods of market stress and volatility
these bonds will also suffer from general contagion to the more liquid bonds,
even if some of the volatility is principally due to wider bid-offer spreads.
However, the benefit of investing in relatively short dated securities is that
the natural pull-to-par at the redemption date will ultimately return the
expected yield (as long as default is avoided). At the time of writing, the
weighted average credit duration of the Fund was just 3.7 years, meaning that
this natural short time decay and roll down the curve helps to somewhat
mitigate against periods of mark-to-market volatility. The strategy of the Fund
is to utilise the PMs' high conviction in the underlying credit selection,
taking advantage of illiquidity premium and building a portfolio that can
generate attractive returns over the medium term, without actively trading or
hedging the Fund through short-term market stress. In this regard, the strategy
has performed well and the Fund is well set up to continue this income
generation over the coming year.  

The PMs recognise that any decline in the underlying NAV is undesirable,
however slight it may be. The good news for investors is that during the phase
of heightened volatility over the summer/autumn period the PMs managed to add
attractive bonds at relatively cheap levels and enhanced the overall portfolio
yield, whilst maintaining credit quality which should benefit investors over
the longer term. Since the end of the Funds ramp-up period, in May-14, the
weighted average rating has been maintained at single-B plus while the gross
purchase yield of the portfolio has been steadily increased over the 6-month
period by 38bp to 7.48%; not an insignificant amount given the underlying low
yield environment.  

Looking forward, the market for 2015 will be one of transition. In the US and
UK the central banks have eased back on their relevant stimulus packages and
rate rises are on the horizon (however far in the future), whereas in Japan and
the Eurozone the central banks are embarking on additional stimulus measures.
How this polarisation plays out remains to be seen, but moving from a market
place driven by fundamentals rather than liquidity injections should be
healthy. However one can expect the coming year to be interspersed with some
periods of heightened volatility, particularly as geo-political risks may flare
up from time to time as well.

We actually see this as an opportunity for SMIF; it is during these periods of
volatility that the PMs are most likely able to source suitable investments for
the medium/long-term benefit of investors. Very rarely do forced sellers appear
willing to sell quality, relative-value product in a benign market; it is
nearly always during stressed markets that the hidden `gems' appear. Hence, the
strategy remains one of maintaining high conviction and taking advantage when
the general consensus may be one of risk reduction - using this as an
opportunity to enhance the portfolio for the medium term return. Ultimately the
global economy remains fragile and central banks are likely to remain dovish
for a significant period of time. This is ultimately likely to result in ever
tighter credit spreads which should be good for the portfolio, however the PMs
will need to remain vigilant and make their investment decisions during periods
of market weakness. This has been the strategy in 2014 and the portfolio is
better as a consequence, however the ramp up during the rally and subsequent
sell off has left the NAV temporarily offside. We hope to correct this in early
2015.

We thank you for your support to date and look forward to generating consistent
and attractive levels of income in a challenging environment for investors.    
 




  TwentyFour Asset Management LLP. Registered Office: 3rd Floor, 24 Cornhill,  
                                London EC3V 3ND                                

 Registered in England No. OC335015. Authorised and regulated by the Financial 
                        Conduct Authority FRN No. 481888                        


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