VPC to use share buybacks to tackle trust discount

VPC Specialty Lending Investments plans to continue its share buyback programme to close the trust’s discount to net asset value (NAV) as it reviews its 2018 performance.

In its yearly letter published in the fourth quarter of 2018, the alternative finance-focused investment trust said it ended the year with a record total net revenue return of 11.41 per cent and a record total NAV return of 8.96 per cent.

Although pleased with its results from a NAV return perspective, it remains “disappointed” that the trust is still trading on a discount to NAV of around 14 per cent.

To address this, it plans to continue with a share buyback programme which has so far seen it purchase 22,504,782 shares. It will also continue using 20 per cent of its management fees to buy shares on the open market, giving the directors ‘skin in the game’ alongside shareholders.

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The London-listed fund made a capital loss of 2.45 per cent for the year, driven by some marketplace loans and securitisation losses, a drop in the stock price of its equity position in its largest investment Elevate Credit, and the cost of a hedging programme.

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The trust reported a 12-month trailing dividend yield of 10.16 per cent.

Despite the market volatility seen in the fourth quarter of the year, the portfolio managers said they do not see signs of a broad-based weakening in credit fundamentals in the fund’s underlying investments.

The fund said it is taking a conservative approach to credit this year, noting some headwinds for US consumers and small businesses, as well as Brexit uncertainty. It said it stress tests its individual company holdings, which are spread across the credit spectrum from prime to non-prime, to see how they would cope in a recessionary environment.

Read more: VPC Speciality Lending posts record quarterly returns