TwentyFour Income dividend beats target despite lower return

TwentyFour Income Fund Ltd on Wednesday reported a lower net asset value return and dividend for its latest financial year, although it continued to outperform its annual income target and said it expects higher interest rates to remain supportive for asset-backed securities.

The closed-ended fund which target less-liquid, higher-yielding asset-backed securities said its net asset value total return was 6.85% in the year ended March 31, down from 13.61% a year prior.

Net asset value per share fell to 108.98 pence at the end of March from 112.83p a year before.

The company paid a total dividend of 10.81p per share for the year, down from 11.07p, but said this remained "significantly ahead of" its annual target of 8.0p despite a lower interest rate environment.

Total net assets increased to £926.5 million from £843.8 million a year earlier, helped by £113.4 million of new capital raised during the financial year. A further £64.8 million has been raised since the year-end, taking market capitalisation to £996 million as of July 10.

Portfolio Manager TwentyFour Asset Management LLP said European asset-backed securities continued to benefit from strong investor demand, while the portfolio ended the year with a book yield of 12.0% and a mark-to-market yield of 11.3%.

During the year, the manager rotated part of the portfolio from single-B rated collateralised loan obligation notes into a mix of BB-rated CLO notes and CLO equity positions. It also began investing in top-tier US CLOs following a change to the company's investment policy.

TwentyFour said it remains cautious on commercial real estate valuations and has reduced exposure to commercial mortgage-backed securities, while favouring logistics-backed assets with diversified tenant bases.

Looking ahead, the fund said the conflict in the Middle East has reinforced expectations that interest rates will remain higher for longer, which should continue to benefit floating-rate asset-backed securities and CLOs.

However, it cautioned that geopolitical uncertainty and the potential deterioration in consumer credit conditions mean it will continue to focus on secured assets, including residential mortgage-backed securities and CLOs from established Western European lenders.

Over the medium term, TwentyFour expects regulatory changes in Europe that reduce capital requirements for asset-backed securities to encourage broader institutional participation and create a "more diversified supply of assets".

Chair Bronwyn Curtis said the company had delivered "another strong year", maintaining above-target income despite market volatility and lower interest rates.

Shares in TwentyFour Income Fund were marginally higher at 109.65 pence in London on Wednesday afternoon.

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