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Hi damofarl
I seem to remember discussing AT1 bonds and TORO at the time of the Credit Suisse meltdown.
I've got the bad taste with TORO this week due to these recent drops, that weeks ago were preceded by a welcome sense of immunity to the AC! crisis at the time. It's changed sufficiently for my investment to go back in the red after quite a few DRIPs and months in the black. I guess a positive is that the DRIP in the coming days will be at a very cheap price.
It's a waiting game for the bulls to return all over again.
April's NAV was 65 cents.
One perspective, the current SP 44, represents 7 years of dividends.
Capt value/Gavster-NBC;
Captvalue; yes I do consider it a buy, as whilst I feel a sell down was justified, the level overdone. Personally I feel the whole market drop is overdone, but the nature of TORO and it's ilk is that any impactful events are very much magnified by the nature of their leverage, and, I do feel, a reactive flight to 'defensive' stocks/cash, compounded by the low liquidity here.
Gavster-NBC;, Firstly, took the AT1 details directly from Chenavaras website, paraphrasing one of their regular and hoc commentaries to market/fellow professionals (when I have time I'll try and post a link). As for releasing to the market, well I don't agree, in that, there is nothing that has had a material impact that is not within the normal spectre of their business, and risk/loss thresholds.
Timing - I get your point, and I'll be honest I didn't do a linear track of SVB/CS collapse/default/takeover timeframe against TORO's reducing SP to validate a direct singular correlation/explanation, mainly because I felt the delay from SVB to CS, to the Swiss regulator invalidating CS's AT1 bonds wasn't a single moment, but an extended drip drip drip down, unfortunately, including a delay period where the bond market incorrectly felt their AT1's had some recourse (value). I think the immediate in step drop timing wise at CV19 was because everyone (except me!) sold pretty much everything everywhere immediately in fear of the unknown, and as such the disparity you infer I don't feel is valid.
Generally - I focused previously on the AT1s as I felt that was a major factor, but as I posted before, not the only factor. The rotating into higher quality debt (lower margin?), the Spanish residential loans (about 15% of portfolio to memory) not contributing , and the general negativity from rate rise/inflation concerns are all drip dragging us down. My view is that the market is perceiving this as a basket case because a number of areas are either not performing or underperforming without considering that all of these currently negatively impacting factors are part and parcel of their risk tolerance, their normal business. With stocks in this era, it is not unusual to see a NAV drop of 10% in a year, with a 21% rise the very following year & it's just part of the beast you have to be willing to accept.
I continue confident here, confident that for TORO its a blip, and that it is oversold within this specialist market - by example take BGLF which I consider the gold standard - despite no definitive statements of defaults/reducing income, their stock is down 15% since February.
Just my views, I'm no expert, but hope it helps.
Hi damofarl. Thanks for doing that digging. It's a reasonable explanation however does not explain the timing of these steps lower. Yesterday being another unexpected step lower. I would have thought such a drop on AC1 bonds would happen the same week as so many other investments reacting to the Swiss bank crisis. After all, the CV19 dip happened the same time as the wider dip, not some random day weeks later. The other bothers are that what you say was 'digging' was either research buried in some AC1/Toro related documents, or an email/conversation you had. Either way, why was the market was not told? Then again why would TORO think investors are interested in operational information that would clearly be price sensitive to being an investment.
Doesn't sound good damofarl, but thank you for digging that out.
On what basis are you recommending a "Buy" with that post. Do you think the sell off (which now sounds as if it was quite justified) has been overdone?
Gavster-NBC; did a little more digging, as to recent underperformance, which is directly related to the banking drops and particularly CS's bond concerns. Just prior to Credit Suisse bond worries, TORO held approximately 15% of funds in AT1 bonds. These Additional Tier 1 bonds have no recourse at all, if the issuing bank's solvency ratios fall below that required by their regulator, and in the case of CS, the Swiss regulator deemed them cancelled/worthless. TORO within a month did reduce it's AT1 holdings to 5%, taking a total haircut on those they held of Credit Suisse, as well as a smaller haircut on other AT's not cancelled but depressed by the contagion, as they scrambled to unwind their positions.
Hi Captain/Gavster-NBC,
Captain;
"What is it with this share, it’s done nothing but drift down for the last year, and the longer term trend is equally bad.
Are the dividends enough to compensate for the capital erosion here, and is thhere any hope the trend might reverse?...."
Well that's the million dollar question isn't it? I number crunched through the last 3 years, and if you bought at the (spiked) peak 65c, without reinvesting the received 21c's dividends you would only be at break even. If you took a month either side of that peak a more typical high was 56c which after replacing SP loss, has yielded 6% net. Not the headline yield that flatters/interests so many granted, but neither the capital destruction you allude too. Trajectory? You have to decide, and whilst I share your jist, I do think that one has to consider the period I've used has weathered COVID/Brexit/Ukraine/bank failure and inflation-reccesion, which is quite a lot in such a condensed period. And as I've highlighted before when querying capital destruction in this sphere, 1) nobody should buy/hold with less than a 5 year time frame, and 2) one has to compare against the capital reduction in more mainstream stock, DLG and Persimmon for instance, to make a decision on whether this stock is singularly failing, or actually representing/holding up well compared to the market generally.
Gavster-NBC; I don't see (or feel) there is a loan defaulting from the latest update. Indeed, a read across from BGLF's latest update is that whilst Euro loans are earning less (than US), euro default rates are less, and reducing.
The 3 factors affecting this downwardly I see as
1 -The rotation into higher quality loans, which whilst reducing the risk, must also be reducing the (profit) margin generated.
2- An erosion of margins, due to rate rises, and to some extent loss, albeit transient whilst their loan base is reset into the future.
3- the Spanish residential loans are definitely impacting NAV/SP, having not generated the returns expected; these aren't generating, they are managing to end, to avoid a fire sale loss, a prudence which at some point should reinforce it.
Not overly concerned but definitely keeping a watching eye. The % of cash at hand and low leverage reassure whilst not inspiring/indicating that a catalyst for outperformance is imminent.
Hi Captain and damofarl.
Yes, I'd like to know what's going on, especially the SP going down two days before ex-div.
Is it the continuing effect of high inflation on companies that we discussed might happen back in 2021 ?
I've been a TORO champion until now, having now seen all my reinvested dividend profit wiped out to round about breaking even or less on my 12 month holdings, and slightly down on my 24 month.
Can't see any particular clues in the March factsheet, could one loan be going south ?
https://www.chenavaritoroincomefund.com/assets/Uploads/8b5a670f53/Chenavari-Toro-Income-Fund-Limited-Factsheet-MARCH-2023-EXTERNAL.pdf
What is it with this share, it’s done nothing but drift down for the last year, and the longer term trend is equally bad.
Are the dividends enough to compensate for the capital erosion here, and is thhere any hope the trend might reverse?
Positive noise from Morning stars recent update
https://indexes.morningstar.com/insights/index-ip/blt450367154896e3f7/index-ip-us-leveraged-loans-liftoff
Good call!
It'll be tommorow, as being 2.5% of NAV it normally follows that notification.
Notice that the NAV keeps dropping marginally, which suggests that income earned has dropped marginally below dividend paid out, but within the context of the rate rise environment, consider this to be good, albeit unspectacular.
Possible divi declaration C.O.P. today?
It came in after hours for the last one in Jan....
'looks like a hold and pray'....
I prefer to think, hold and pay (the dividend)!
Looks like a hold and pray...
Commentary from the latest factsheet highlighted that European corporate defaults were at very low levels which is reassuring. Also of note is their trading up the credit quality to 'improve the overall credit quality of the portfolio as we move into an environment with potential for elevated credit stress'.........
Quick read across from BGLFs factsheet - their Euro CLOs performed well (as opposed to US which had a slight loss), which has relevance here as TORO is more euro dominated so should bode well
kentio; yes of all the CLOs, BGLF, all things considered, is my favourite. They are currently extremely bullish, and could pay a dividend considerably in excess of the 10% they do. It is the one CLO that has considerable and wide institutional share ownership. If you are thinking of buying your first CLO stock, it would be the one, as it was for me 5 years ago.
Scandiexpat; the illiquidity and spread here, as with most CLOs is a problem. I've found you have to place an order and sometimes wait a week before it gets executed. Obviously if you needed to exit quickly, that's a major problem with such liquidity, hence my advocating that you need to be prepared to invest and forget about for 5 years..The flip of that illiquidity is that when stocks dropped sharply at the end of last year, this barely moved.
Gavster NBC; i think a lot of these CLOs are continually undervalued, but it is that cushion that reassures me. TOROs factsheet did highlight profitable trading of BB rated loans, that they bought in 4q opportunistically and have subsequently sold, which is probably the cause of the NAV uplift and a growing confidence in the CLO market generally, also highlighted d by BGLF and Morningstar coverage of this arena (which is excellent, link below). I have found both NAVs and SPs rising recently (alas I'm not seeing such in my mainstream stocks!), aided by this more positive sentiment (of a soft recessionary landing) generally, and Co specific pronouncements (BGLF bullish and consulting holders on what to do with NAV discount beyond buybacks, FAIR buying back whilst reassuring fixed 8c divvy easily covered, and TORO demonstrating trading agility with it's BB transactions and NAV uplift).
Generally, as well as holding for 5 years, I do think you need to take a stance on share ownership. Whilst BGLF is widespread across well known institutions, others like TORO are held by a myriad of anonymous companies which might concern some, so to some extent you can't be sure whose interests are being considered. I've basically took the view that these unknown, always offshore domiciled limited cos, are basically high net worth individuals wanting the same as you and me, high fixed yield, to forget about, and I'm happy to ride on their coat tails.
TORO specifically; they are very much Europe predominated, which is actually the strongest market currently, whereas most of the CLOs are US dominated, and I value (within this arena) that diversity. They are sitting on £17mill in cash which covers the next year's divvy, but I do wonder what there considerations are to reduce/realise the NAV discount, on which they have long been silent.
https://indexes.morningstar.com/insights/index-ip/blt450367154896e3f7/leveraged-loans-liftoff
If CLOs interest you, I would recommend BGLF (or the. sterling version BGLP). Latest. monthly. report shows. NAV increasingly. 1.5% and they recently increased their. dividend. target. to. 8 to 9 Euros. They consistently receive more. cash. than they pay. out and. put the rest into reinvestment. and buy backs. I. would. def. recommend and. I believe. our. fellow CLO investor Damalfi like. it, too
Am also looking to load up a bit more as my dividend portfolio yields the next month. My main concern is really the lack of liquidity in the stock.
IMO Looking decidedly cheap at the moment. Increased 3 holdings today into ISA's/trading. Can't imagine anything is particularly up compared to last week or last month, unless there is default/problem somewhere within the labyrinth, the factsheet not exactly full of clues.
Cheers and GL
Latest factsheet......err, they seemed to have nothing to say! The least informative I've read yet!
Well, I'm going with the adage, no news is good news, business as usual, nothing to report....
Holders here might want to note the recent RNS from BGLF. A tacit admission that their 3 year buyback hasn't reduced NAV discount but also a confidence that it is true.
Have to say, I think the mood music from TORO of late has been less than certain, whilst not panicked, so be interesting to see if they proclaim confidence in their NAV discount, ongoing success, that both BGLF and FAIR seem to be highlighting.
from the latest factsheet.....
'Credit remained broadly stable in the portfolios invested in the Toro fund with no new loans becoming distressed during the month and a significant improvement in pricing and tone for the weaker names we are tracking in the portfolios with several of them up 5-10pts during the month.'.....
gavster-NBc; indeed! I do keep chuckling when i think of this constantly labelled high risk/professional investor only whilst looking at my mainstream/FTSE 100 high yielders that have taken a full on basin haircut this year!
Hi Damofarl
"Seems all very much boring business as usual..."
Which is exactly why we all like being invested in TORO, all things rollercoaster elsewhere as the weeks go by as we receive a high yield. Today was a smile as I did a bunch of trades across ISA's/Trading Accounts reinvesting the dividends that landed today.