Aviva Investors’ Chris Murphy is continuing to back P2P lending within his UK Equity Income fund despite the sector’s struggles in recent months.
In line with other UK equity income managers, such as Neil Woodford and Invesco Perpetual’s Mark Barnett, Mr Murphy has gained exposure to the sector via the P2P Global Investments trust.
The trust lends money to various P2P businesses through a number of platforms, and can also hold small equity stakes in these platforms.
However, shares in the trust have sold-off sharply as investors show signs of turning against more esoteric lending offerings. The trust’s share price has fallen 16.3 per cent over the past year, according to FE Analytics.
Aviva Investors is the seventh-largest shareholder in the trust, according to S&P Capital IQ data, and Mr Murphy is continuing to back the sector via his £918m fund.
“What I like about [P2P Global] is that you’re not reliant on one platform model or lending pattern, and [the company has] its own systems as well to cross-check the data against what it is being told, which makes it a relatively low-risk way to get exposed to that industry and lending.
“So far, the trust has had a good track record of getting the money invested and getting good income returns to investors,” Mr Murphy said.
By contrast, the manager is underweight the banking sector, a strategy he said stemmed from his belief the sector is feeling the pain of regulatory pressure and loose monetary policy.
Regulators have cracked down on banks since the financial crisis in an attempt to address systemic issues and rein in leverage ratios. Low interest rates have added to pressure on revenue margins.
Mr Murphy said: “Banks are in a difficult place as they are highly leveraged. It’s different when you refer to bonds as they’re higher up the food chain in terms of creditors. But as an equity owner I’m right at the bottom, so if anything goes wrong I take all the pain. It’s important to know where we are in the capital structure as there is a difference for the investment story.”
Dividend cuts at a number of UK companies have made the domestic income landscape more difficult for managers, and Mr Murphy said the pool of available options was becoming smaller.
“When you’re running an income fund, you have to be very careful if you’re just going for yield, because the spread of companies where you can get it from are limited.”
While small- and mid-cap stocks have been good sources of growth and income in recent years, the manager said he remained watchful given the possibility of a vote for Brexit in the June 23 referendum.
Liquidity could be a concern if fears over the UK economy spike in coming months, he warned. “You’ve got to be more selective of where you’re investing, you can’t just benefit from being overweight the FTSE 250. The domestic economy has done well but [the referendum] will create uncertainty – particularly if the vote goes that we exit.