Kepler: The performance of HONY’s portfolio since launch has been extremely impressive. The high yield has been consistently generated and NAV maintained, even through the current pandemic. Naturally, investors are likely to be wary of the immediate future. However, we think the indications from the portfolio are good so far. Although some of the underlying loans went into forbearance in Q2, the vast majority are performing once more and importantly the structure of the loans provides significant protection.

We think the counter-intuitively defensive characteristics of the asset class might be missed by some. As much of the underlying portfolio is extremely short-dated, lenders are able to stop new lending and build up cash quickly. This, and the flexible gearing facilities, means the managers have the wherewithal to expand the portfolio once more. They report the pipeline of potential investments already looks promising, as projects mothballed prior to the pandemic get under way.

We recognise a second round of lockdowns creates uncertainty in the immediate future, and this complexity is another reason the discount might persist. However, the overhang of stock held by Woodford and Barnett has long since been cleared, and so should no longer be an issue. HONY offers equity-like returns in income, should it navigate the coming six months as it has the past six.

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Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Honeycomb Investment Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.