100 Club: Luckraft eyes peer-to-peer lending space

The manager has backed GLI Finance and VPC Specialty Lending in his Axa Framlington Managed Income fund and also has stakes in these companies in his Monthly Income vehicle.

The asset class has become a feeding ground for a growing number of managers, who now see the sector as a proxy to fixed income, where yields have been suppressed to extreme lows thanks to loose monetary policy worldwide.

Mr Luckraft said the investments were a play on the fact technology was affecting the way many industries worked, and that the financial sector was “no different”.

The industry had become a “significant part” of the amount that was being lent to small- and medium-sized enterprises, he said.

In many instances, banks were lending to peer-to-peer firms as a way of fulfilling government requirements of helping smaller businesses prosper “without being directly involved”.

Mr Luckraft said: “It is a young industry and there will naturally be concerns. However, some of these platforms have access to better information than banks do.”

The manager said he expected yields – which move inversely to prices – would come down and that the risk-reward profile of the industry would change.

Peer-to-peer lending companies were yielding anywhere between 7 and 15 per cent, and the sector had been given a boost after it was recognised as an eligible investment in Isas, he added.

High-profile fund manager Neil Woodford has also been active in the space, including investing in P2P Global Investments, which Mr Luckraft also owns in his Monthly Income fund.

F&C Investments multi-managers Rob Burdett and Gary Potter were also among those who added the specialist lending investment trust to their portfolios.

Mr Burdett said he had bought shares in the business in its latest C-share issue earlier this year.

Other investment houses that also bought into the trust at the time were Ruffer, City Financial, Prudential and JO Hambro Capital Management.

Mr Luckraft said he invested in the initial subscription of P2P Global Investments more than a year ago.

The Axa Framlington Managed Income has produced top-quartile returns in the past three- and five-year periods and its shorter-term performance has also been solid, data from FE Analytics shows.

The fund is in the second quartile of the Investment Association Sterling Strategic Bond sector across one year.

Among the manager’s most recent moves on the fund was the purchase of a new bond holding in builders’ merchants Travis Perkins. This was alongside equity investments in property investment business Redefine International, as well as VPC.

Mr Luckraft also increased the fund’s holding of a convertible bond issued by infrastructure group Balfour Beatty.

A convertible bond is a security that can be converted into equity of the issuing company at certain trigger points, something that can usually be carried out at the request of a bondholder.

The manager said his performance in March was helped by a further recovery in both the EnQuest and Lonestar Resources bonds, while the Sequoia Economic Infrastructure Income fund also moved higher.