In the back
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[ WHAT I BOUGHT LAST ]
We believe the lower-quality parts
of the credit spectrum should be
exploited by an expert team with a
proven track record of credit selection
– a view shared by the managers of
the trust
MGIM’s James Klempster says a closed-ended structure is vital for
accessing a niche sector such as asset-backed securities
TwentyFour Income
T
he beauty of
being a multi-
asset fund
manager with a global
reach is that you have an
almost unencumbered
choice of investments
to buy. However, one of
the biggest frustrations
of discovering a great
niche asset class is
being unable to find a
manager or a structure
that allows us to access
it in an appropriate way
in our portfolios.
This is often the case
in less liquid markets
and as a result we look
for vehicles that are
not left at the mercy
of our fellow investors
when times get tough.
FE TRUSTNET
Investment trusts are a
great example of this as
their corporate structure
provides them with a
fixed pool of capital.
The downside is their
share price can deviate
from fair value, so we
have to be patient buyers
and sellers to ensure
that our clients are not
penalised. Recently, we
added to our holdings in
the TwentyFour Income
trust, a position we have
held in some of our
portfolios since launch.
Ticking the boxes
TwentyFour Income
ticks a number of the
boxes we like to see
in a holding. Firstly,
it is run by a boutique
fixed income manager.
We don’t have a hard
rule about preferring
boutiques, but in illiquid
asset classes it often
makes sense, as the
managers will not be
under huge pressure
to increase their AUM
(even investment trusts
can expand by issuing
more shares).
Secondly, TwentyFour
is a specialist in its
field. Asset-backed
securities (ABS) are a
core part of global fixed
income markets and
in the post-crisis years,
the group has built a
strong franchise in the
more niche European
part of this market. We
consider it a leader in
the asset class.
TwentyFour was
formed in 2008 by
the seven founding
partners and although
today it is majority
owned by Vontobel, it
continues to be closely
aligned with its clients’
interests.
Mispriced securities
This strategy
predominantly offers
exposure to UK and
European mezzanine
ABS via a listed closed-
ended trust. It seeks
to exploit mispriced
securities to deliver a 7
to 10 per cent net return
per annum, which
comes with limited
interest-rate risk due to
the floating-rate nature
of these securities.
We believe the lower-
quality parts of the
credit spectrum should
be exploited by an expert
team with a proven track
record of credit selection
– a view shared by the
managers of the trust.
They adopt an active,
team-based approach to
investing with a focus
on detailed, bottom-up
credit research. This
attempts to identify
undervalued securities
that the managers are
confident will not suffer
impairment and will
deliver both income and
capital appreciation.
Furthermore, the trust
offers diversification
from our current fixed
income holdings as it
is lowly correlated over
time to global high yield
and equities.
James Klempster is
director of investments
at MGIM (Momentum
Global Investment
Management)
trustnet.com