SQN Secured Income Fund

Last updated 22 January 2020

SSIF’s shares are yielding 8%, and it is one of few trusts to pay a monthly dividend…

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by SQN Secured Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

SQN Secured Income Fund

SQN Secured Income Fund (SSIF) lends to small businesses, paying a fully covered 7p annual dividend in monthly instalments. SSIF has been transformed under manager Dawn Kendall, of SQN Asset Management, who took over in August 2017. A portfolio of senior secured direct loans has been built up and legacy investments in troubled peer-to-peer platforms sold down. Dividend cover has been achieved under the new asset mix, which generates an underlying portfolio yield of 10%, more than enough to meet the target of a net 8% total return per annum.

The company is designed to take advantage of a gap in the market created by banks’ low levels of lending in the £1m-to-£20m loan size bracket due to regulatory capital requirements and the complexity of the deals. SQN tells us that this means SSIF can be highly selective and generate yields of 9%–12% on its loans.

Thanks to a historic dividend cut when the manager changed (since reversed), as well as an overhang of stock held by an investor associated with the previous management, the company has slipped onto a discount (currently 7.7%). The company therefore decided to conduct a continuation vote if net assets were less than £250m on 31 December 2019. With net assets of c. £50m at the time of writing, the company is exploring options for its future.

We understand that the managers have tabled two options for shareholders at this point. One option is that investors could choose to allow the manager to continue with the current strategy, selling down the remainder of the legacy portfolio and completing the transformation into a direct lending proposition. This could include taking advantage of the 35% gearing allowed, which could boost the dividend to up to 9.5p and, were the discount to then close, the trust could seek to scale up with further share issuance. Alternatively, if shareholders wanted the company to wind up and return cash to shareholders, the managers have estimated this would take two to three years to execute.

A related party to the previous manager, Somerston, retains 28% of the shares and so any decision will likely require Somerston’s agreement. We understand SQN is in discussion with Somerston and other shareholders to gauge their opinions on the best route forward.

Thomas McMahon
Thomas is a senior investment trust analyst and joined Kepler in April 2018. Previously he was senior analyst at FE Invest, where he was responsible for fund selection for a range of model portfolios. He covered all asset classes over time, but has particular experience with emerging markets and fixed income as well as UK smaller companies funds. He has a degree in Philosophy from Warwick University and is a CFA charterholder.

Fund History

Related Research

Key facts

Investment objective

To provide shareholders with attractive risk-adjusted returns by investing in a range of secured loans mainly through wholesale secured lending opportunities, secured trade, and receivable finance and other collateralised lending opportunities

As at:

16/01/20

Trust Name

SQN Secured Income

Ticker

SSIF

Management Company

SQN Capital Management, LLC

Manager Name

Dawn Kendall

Association of Investment Companies (AIC) Sector

Debt - Direct Lending

12 Mo Yield

8.2%

Dividend Distribution Frequency

Monthly

Latest Market Capitalisation

£44,761,298

Latest Net Gearing (Cum Fair)

-5%

Latest Ongoing Charge Ex Perf Fee

2.03%

Turnover Ratio

0.0%

Shares Outstanding

52,660,350

(Discount)/ Premium (Cum Fair)

-7.7%

Daily Closing Price

85p

Source: Morningstar

Disclaimer

This report has been issued by Kepler Partners LLP.  The analyst who has prepared this report is aware that Kepler Partners LLP has a relationship with the company covered in this report and/or a conflict of interest which may impair the objectivity of the research.

Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and you may get back less than you invested when you decide to sell your investments. It is strongly recommended that if you are a private investor independent financial advice should be taken before making any investment or financial decision.

Kepler Partners is not authorised to make recommendations to retail clients. This report has been issued by Kepler Partners LLP, is based on factual information only, is solely for information purposes only and any views contained in it must not be construed as investment or tax advice or a recommendation to buy, sell or take any action in relation to any investment.

The information provided on this website is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation or which would subject Kepler Partners LLP to any registration requirement within such jurisdiction or country. In particular, this website is exclusively for non-US Persons. Persons who access this information are required to inform themselves and to comply with any such restrictions.

The information contained in this website is not intended to constitute, and should not be construed as, investment advice. No representation or warranty, express or implied, is given by any person as to the accuracy or completeness of the information and no responsibility or liability is accepted for the accuracy or sufficiency of any of the information, for any errors, omissions or misstatements, negligent or otherwise. Any views and opinions, whilst given in good faith, are subject to change without notice.

This is not an official confirmation of terms and is not a recommendation, offer or solicitation to buy or sell or take any action in relation to any investment mentioned herein. Any prices or quotations contained herein are indicative only.  

Kepler Partners LLP (including its partners, employees and representatives) or a connected person may have positions in or options on the securities detailed in this report, and may buy, sell or offer to purchase or sell such securities from time to time, but will at all times be subject to restrictions imposed by the firm’s internal rules. A copy of the firm’s Conflict of Interest policy is available on request.

PLEASE SEE ALSO OUR TERMS AND CONDITIONS

Kepler Partners LLP is authorised and regulated by the Financial Conduct Authority (FRN 480590), registered in England and Wales at 9/10 Savile Row, London W1S 3PF with registered number OC334771.



Welcome to Kepler Trust Intelligence

Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority.
Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
Kepler Trust Intelligence is authorised in the UK by the Financial Conduct Authority. To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase. We do not share your personal information and your answers are not linked to your identity for marketing purposes.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.