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To generate attractive, risk-adjusted returns, principally through income distributions, mainly invests in US and European CLOs or other vehicles.
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Cont’d (not sure why it truncated)
The spread is over 10% for vta - so buying vta wipes out one year of dividends.
I’d also point out that while the gbp/euro is pretty fair valued (don’t think it’ll change by much) I believe the dollar will strengthen vs gbp.
This makes Fair a better bet as you’ll get the FX lift too.
Hi Gavster, there's nothing public and its largest single holder is Citi (19%), and 2nd Nortrust, but many major names are invested here Abrdn, Quilter, Sarasin, so take your pick. There's nothing public about it.
We are overdue the monthly update by over a week for June's report, so maybe there will be some clues in there. The discount to NAV has been dropping and now stands at 13.3% (vs 16% in May) - so the buy backs are working.
I see your point about reinvesting in further CLOs. In May 2023's report it can be seen that annualised cash flows are at 26.6% of share price so there's lots of cash (morningstar shows 17% of NAV is cash). The realisations for FAIR seem to be much higher than what other CLO funds are seeing e.g. Volta (at 20%). But of course the amount of distressed debt is increasing, so cheaper prices might also equate to higher risk, potentially, so this appears to be part of the reason. And I'm happy for them to make a judgment call on that.
When I look at the 2022 accounts the amount paid in dividends is breathtaking. $45m of dividend payments in 2022.... on a $232m market cap! Buy backs also reduce future dividend payments, as well as increase NAV per share, so there is a logic there. Plus the spread on FAIR is >2%. Volta by comparison is
Hi Damofarl, Agricore et al.
Out of interest...
Have you figure which of the large share holders does not want Claudio Albanese or Jonathan Bridel to be directors ? Also would this be the same holder that's being allowed to sell out via the existence of this buyback, or the whole reason why this buyback is in place ?
I note a question on another BB as to the wisdom of spending cash on a buyback when some CLO's are considered so cheap so this cash could be invested instead.
Hi Damofarl, good feedback - decided questioning the realisation buybacks is a battle not worth worrying about.
Today had an eenie meanie between a further top up on either FAIR or DEC and came down on DEC's side. DEC's capital appreciation tipped it for me but remain with a large holding here. Have you looked at Amedeo (AA4) at all? I bought in and sold back out on some erroneous news about the future of the A380s but am starting to think about Airline Leasing as a 3rd high yield strand to diversify into. Was interested in your view?
Hi Agricore; with regard to the redemption shares, they are held not exclusively by large holders/BOD at all, and were available as an option to all existing shareholders, before we were split into 2021 and realisation classes. I HAD the oppurtunity to take up the Realisation shares and/or mix and match, but chose not to. Have to say, I wish I'd gone 50/50, albeit I'm not that perturbed.
With regard to the Realisation buybacks, err, I get your point in that they are getting full price for that small percentage, but then that was the point , to allow an out, and as such that is why FAIR wouldn't be able to buyback below NAV - because holders know what is already on the table. That said, it does remove/save the divvy from that small part repurchased, this year, and each subsequent year, as did the previous capital return......
Damofarl, that's very kind of you. My perspective is that it's tough being a private investor, so if we can help each other and pool our perspective in a (as you put it) valuable, insightful and respectful way then it's a win-win. I've spent many years seeking to improve my investment acumen (probably to compensate for making catastrophic losses in my early years) and read extensively around the subject. Being an accountant certainly helps too.
Returning then to FAIR today's announcement is interesting. Alongside the buy backs is the capital redemption. I am a 2021 shares holder as I suppose you are. The lucky folks with Redemption shares get face value - i.e. 57.82 US cents per share on 3.59% of their holding. That actually depresses the NAV per share for you and I (since the absolute discount is shared among slightly fewer shares). They've redeemed around 6% of the remaining redemption shares..... I wonder who the Redemption holders are - is it the BOD or larger holders maybe?
Interesting too, that it is the 2021 shares which are being bought back day-by-day and not the redemption shares. I'd assumed (wrongly) that the redemption shares (being older) were the ones being bought back.
I feel like I may have found a loose thread which could be the start of some questions to FAIR's investor relations.
Agricore; off message FAIR wise, on a personal note just want to thank you for your considered forensic contributions across a number of boards, on stocks we obviously mutually own (RGL, IPO, DEC to mention a few) amongst others. Really value your observations (positively or negatively), and your addressing, focusing in/attacking the fundamentals whilst never attacking the messenger. Your contributions wherever I see them are valuable, insightful and respectful, and I thank you for that, and their refreshing counterbalance to the preponderance of pumping/dumping/personalisation/poster assassination so omnipresent on these boards.
On a light note, very impressed at yesterday's RNS, and the purchase at 0c! Whether at 0c or 49.3c, this remains a bargain stalwart of any balanced portfolio.....
Agricore; you did well to get that price. I always advocate holding the kind of stocks in FAIR's sphere for 5 years, and one of the reasons for that is you lose 5% on the spread on the way in AND on the way out, due to low liquidity (and potentially more due to currency fluctuation lose), and you seem to have been the rare beast to not suffer the spread!
When I first invested in these CLO type stocks, I always factored these costs in, and considered instead of the headline grabbing (bucket case alarms?) yield that over that timespan, they would still produce a real 10%+ yield.
I still think FAIR is a buy, but I'm top heavy CLO type stocks, and particularly FAIR. Interestingly, amongst those I hold, FAIR's SP has held up best, and maybe that's the buybacks kicking in, or they were less impacted by the banking/Credit Suisse loans malaise.
The accretive affected these buybacks is unquestionable, being from cash, and not flattering performance related mgmt share options (which seem absent), which is one of my biggest bug bears with buybacks.
Whilst I now like the certainty of the fixed 8c divvy, and the confidence that shows, in the sustainability of income, I think the performance of the realisation shares shows that the NAV is true, and the reality of what winding down historical assets/liabilities does for the SP. I say this not because I believe they will do another realisation share, but because I believe they are generating income comfortably in excess of the fixed dividend, and still believe there will be a special.
Managed to top up at 37.2p a share which I’m very pleased with. 6.4p per annum translates to a 15.5% yield. My earlier holding is at 42.2p so has a 15% yield
Demofarl, you're right 16.6% - I think the 17.7% was a trailing yield calculation on my broker's website.
I was thinking about "risk" and our previous conversation around understanding (or not) the finer workings of FAIR's fayre. I arrived at the rationale that it depended quite a lot on the talent of the key people running FAIR. Here's what I found, and the short version is they appear to be a very shrewd and talented group at the top.
https://www.linkedin.com/in/claudio-albanese-652b345/?originalSubdomain=uk
https://www.linkedin.com/in/jon-bridel-864ba235/
https://talent4boards.com/fair-oaks-income-welcomes-fionnuala-carvill-to-its-board-as-non-executive-director/
Agricore; it's a fixed 8c so more 16.6%, but we will not fall out over the difference!
Good to see still ticking IC's number chrunchers, but it's ineligibility for the top 10 is probably a blessing in disguise for those in the know!
On the buybacks, they seem to be increasing the daily amount (albeit from a low slow start), and I note the last was at their lowest achieved price, being mostly at 48c.
Also the yield is 17.7% and interestingly I put through a test buy and had a £0.4796 buy price. Time for a top up next week me thinks.
3 weeks until ching ching day Damofarl :)
Once again FAIR is listed in IC's top 25 investment trusts now with a Z-Score of -8.6. I don't think I've ever seen an IT on a -8.6 - well I have now. Yet once again not included in their 10 picks.
On a discount to NAV on -17.9%. That's due to the increase in NAV on the last update. Plus the buy backs are hoovering up shares and increasing the NAV per share. Are they blind?!
https://www.investorschronicle.co.uk/alpha/2023/06/09/investment-trusts-for-income-and-niche-exposure/
More ching chings for us :)
GLA
Agricore; yes kerching indeed!
Initially I wasn't a fan of the fixed 2c divvy, as opposed to their fluctuating but generally higher preceeding dividends, but I'm a convert - I do think it provides a fixed baseline to consider progress from, and some certainty. Not a fan of buybacks generally, but being purchased from cash at hand, and to a lesser degree (I think!) a portion from ongoing cash inflows, they must be compounding the NAV, which despite 2 dividends since year end, has increased it's discount to a fairly fixed SP, by 5%.
And the mood talk from their commentary, seems very much on oppurtunity, not concern (of volatility/defaults).
I'm interested to see the next quarterly income receipts, but frankly, sat here a happy bunny, waiting to see which lasts longer, me or the buybacks!
8 cents on 49 cents is a whopping 16% yield yet here's it comes rolling in once again.
Seeing the first buyback going through at $0.50 thought I'd have a proper look at the accounts...a few things caught my eye.
The avg purchase price at year end of $3.5 millions worth of buybacks was $0.4904, with the year end SP being $0.49 suggesting the buybacks are supporting/lifting the SP marginally.
Cash/cash equivalents were $27 million. I highlight this because, the buyback conditions include that, (disregarding investment mgr fee rebate buybacks), they will only continue, where there is excess capital after expected costs/cash call commitments. Ergo, however slowly, their continuance suggests FAIR aren't concerned as to a deterioration or unscheduled event.
FAIR received $57m in distributions from their loans in 2022, considerably higher than 2022.
The level of higher rated B to BB rated debt rose from c80% to c90% during the year, with all that increase coming from selling/closing out of an equivalent percentage of previously held unrated debt (i.e proper junk loans), which tends to support their narrative over the last 6 months of rotating into better quality loans.
The split of loans is a third Europe and two thirds US, none of which were in default.
There is some narrative regarding recent rate rises and their impact, not in that, in themselves, they are causing them problems with margin, but that some of their borrowers loans are stuck at the now defunct LIBOR rate, either having a transitional period to the new SOFR benchmark base rate, or have no contractual mechanism to change hence are fixed at the last quoted LIBOR despite FAIRs loan cost having increased with the rate rises/new benchmark. The proportion of such loans appears small, and reducing but maybe this is reflected in the recent NAV reduction...
As ever just observations, not recommendations but I do feel that that $57m of received distributions provides some margin to cover the obligations of $230m.
Morning stars latest update on leveraged loans bodes well......
https://indexes.morningstar.com/insights/index-ip/blt450367154896e3f7/index-ip-us-leveraged-loans-liftoff
Another dividend investment I have is SMIF (TwentyFour Select Monthly Income), high risk, high yield.
They periodically offer to buy, by tender, 20% of their holders' holdings at a price that's a slight discount to market. Admittedly there are not many takers, but..
I can't help wonder if Fair Oaks did a similar strategy, or at a premium to the market price, the buyback may actually get finished before my kids' kids have kids.
Hi Gavster-NBC; yes the buybacks........at the current rate I think they will continue long after you and I have long gone!!!
Hi Agricore and damofarl
Yep, looks OK on flight through.
Correction
Yep, looks OK on flip through but wasn't inprissed.
Correction
Yep, looks OK sifting through but I wasn't impressed they released it with mistakes, twice! The first one was glaringly obvious too, missing a figure from the 2022 Nav figure making it 10 times smaller. Did they give this task to a trainee to be written up or what...
Anyway. It's not exactly bed time reading but I will endeavor to read through in detail on trains and plains.
I'm glad they are spreading the risk well over continents. The only issue I really have currently, apart from a weaker dollar, is the amount of time the buyback program will last.
Cheers and GL.
Agricore; yes a turgid read but as you say solid enough. Thanks for signposting the Hardman research - I'm not in Volta as I am already top heavy - but it is really useful in demystifying how FAIR and it's ilk work.
FAIR' results suggested to me, that the realisation shares had faired better total return wise than the ongoing shares, and wondered if anyone had any views on such? Uninhibited by ongoing investment (risk), they doing seem to be performing well....
Today’s annual report showed an apparently solid performance. A labyrinth of terminologies so not an easy read. I also read Hardman’s research on Volta but is also useful to better understand Fair oaks and the CLO industry. I’m planning to double my stake in FAIR in the next week.
Agricore; thanks for that post. Wasn't aware of the IC's Alpha IT before - I note it has returned 11% since inception so their parameters must work. Yes interesting to see FAIR at the top of their tree, albeit will never be in their top 10 as it breaks their 'niche' parameter. Always nice to see exposure though.
Keenly awaiting their next update, as bar a poor performing period, at the fixed divvy, they must be building excess cash....
https://www.investorschronicle.co.uk/alpha/2023/04/04/investment-trust-discounts-could-tempt-back-tech-buyers/
Top of the pile of the top 25 in this month's investor's chronicle screening is FAIR. Z score of minus 5.6.
First time I've seen it getting any kind of mention.