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Opportunities in the high-yielding leasing sector

Biotech trusts top performance charts in February

Should income-seekers take a look at opportunities in the high-yielding leasing sector?

Investment Week, David Brenchley, 2 March 2020

Recent precipitous share price falls in the Association of Investment Companies’ (AIC) leasing sector may have presented an investment opportunity for income-seekers, but caution remains warranted, according to experts.

..Charlotte Cuthbertson, co-manager of the Miton Global Opportunities trust, said the high yields offered by the aircraft leasing trusts had previously made them popular with investors, meaning there was no discount play in the sector.

..Rupert Silver’s Credo Dynamic fund owns Doric Nimrod Two and Three alongside Amedeo and topped up its exposure after the sell-off. “We believe this an attractive risk-adjusted opportunity that has a low correlation to the broader portfolio,” he said.

Silver explained: “If we assume the aeroplanes are sent for scrap, which is likely to be the worst  case scenario, the current price offers high single-digit internal rates of return.

“There is the potential for further income before aeroplanes are scrapped as at a certain price other airlines or wet-leasing operators may enter the market, albeit somewhat limited by the expensive refit costs. Any further income or re-leasing is very much upside from the current levels.

“At the current prices, we estimate that the aeroplanes have to achieve little more than approximately $13m to breakeven, which is around a third of market estimates of scrap.”

James Carthew, head of investment company research at QuotedData, meanwhile, owns DP Aircraft I. “I still find it weird that you could buy the company for £28m and end up with a plane that was valued at $180m new and £81.4m at the end of March 2019”, he said.

Alongside the aircraft funds, SQN also leases manufacturing and marine equipment, among other assets.

Carthew said the trust “showed initial promise in its attempts to build a diversified leasing portfolio but has made a number of blunders along the way”.

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