ACM European Enhanced Income posted negative NAV returns during April due to the continued weakness ...
ACM European Enhanced Income posted negative NAV returns during April due to the continued weakness of the euro versus sterling.
The NAV fell by 4.3%, but this was marginally ahead of the 4.63% decline in the trust's benchmark, which consists of 50% Merrill Lynch High Yield index and 50% Lehman Brothers Europe Corporate Bond index leveraged by 125%.
The closed-end fund's share price fell by only 0.25% over the month but demand for the shares did not fall as much as the NAV as investors regarded the 9% yield as attractive.
Since the start of the year the fund, managed by Chris Wilson at Alliance Capital Management, has increased its exposure to European high yield paper.
Investment grade bonds were supported early on in the year with lower long-term interest rates in the eurozone government bond markets, according to Wilson. However, he said poor performance by the euro and an interest rate hike from the ECB, pushed long-term interest rates higher, which had a negative impact.
Although European high yield paper has produced negative returns it did outperform more highly rated debt.
Wilson said he tried to maintain some diversification in the portfolio even though the corporate bond market in Europe is dominated by paper from telecom companies.
Currently 23% of the portfolio has exposure to issues from telecoms. Wilson said his recent purchases have been outside that particular sector, such as Ineos Acrylic, a holding which yielded 10.25% at issue.
The portfolio is split 58.7% in high yield corporates, 30.3% in investment grade and 11% in government securities.
In terms of credit ratings, the trust's largest exposure is to single B at 49.1% of the portfolio. This is followed by double As and triple Bs at 11% and 10.8% respectively.
Some 10.7% of the portfolio has exposure to single A rated paper and 8.6% to triple A, while there is a 3.8% weighting in triple C rated debt.
Although the fund's total assets of approximately £90m are in euros the shares are denominated in pounds and will pay a quarterly dividend in sterling.
The closed-end vehicle, domiciled in Dublin, has a fixed life of five years, after which a continuation vote, requiring approval by 75% of shareholders voting, will be held to extend the life of the fund. After 10 years the board intends to offer shareholders options including the opportunity for re-investment in a replacement vehicle or a cash exit.
At close of business on 23 May the trust was trading on a premium to NAV of 10.5%.
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