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Investment Trust Insider on Hadrian’s Wall Secured Lending

Investment Trust Insider on Hadrian’s Wall Secured Lending

James Carthew: Can Hadrian’s Wall take on Funding Circle?

Funding Circle SME Income Fund (FCIF)’s premium has taken a bit of a knock after its board indicated that its dividend will be cut later this year.

The fund had paid quarterly dividends at a run rate of 6.5p. However, going forward the board thinks the dividend might drop between 5p and 6p. Although this isn’t grew news, it isn’t a disaster.

There are two reasons for the dividend cut. Firstly, an uplift in the cost of the fund’s sterling/dollar hedge, which has been caused by much higher interest rates in the US than the UK.

Secondly, gearing levels are set to fall because loans that it made using European Investment Bank funding will start to amortise. The latter issue is fixable, but higher hedging costs appear to be more of a persistent problem.

FCIF has been a success story in the alternative lending debt sub-sector. The real darling is still Honeycomb (HONY), which sits on a 10.4% premium, probably courtesy of its superior dividend yield (7.2%, despite the premium) and its tightly held share register.

However, post the dividend cut, FCIF’s yield will be closer to that of fellow SME lender Hadrian’s Wall Secured Investments (HWSL).

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