Sequoia Economic Infrastructure Income Fund Limited

(“SEQI” or the “Company”)

Monthly NAV and portfolio update

The NAV per share for SEQI, the specialist investor in economic infrastructure debt, increased to 94.30 pence per share from the prior month’s NAV per share of 92.46 pence, representing an increase of 1.84 pence per share.

A full attribution of the changes in the NAV per share is as follows:

The valuation of most fixed rate instruments (which represents 58.6% of the portfolio) has increased during May 2024 due to the marginal reduction in risk free rates and a sustained reduction in benchmark spreads for certain instruments, predominantly in the utility and power/energy sectors. This has also resulted in a reduction in the pull to par from 4.2 pence per share in April 2024 to 3.8 pence per share in May 2024. The Investment Adviser also expects abating inflation to provide a foundation for steadier credit markets, highlighting that the long-term outlook on inflation and base rates points towards a beneficial tailwind to the Company’s NAV, as falling rates would typically increase asset valuations.

As the Company is approximately 100% currency-hedged, it does not expect to realise any material FX gains or losses over the life of its investments. However, the Company’s NAV may include unrealised short-term FX gains or losses, driven by differences in the valuation methodologies of its FX hedges and the underlying investments – such movements will typically reverse over time.

Market Summary

During May 2024, central banks across the UK, US and Eurozone maintained policy rates at 5.25%, 5.50% and 4.00%, respectively. On 06 June 2024, the Eurozone announced the first rate cut of 0.25% to 3.75%, as CPI inflation has declined in the region to 2.4% as at April 2024. On 12 June 2024, the Federal Reserve held rates steady in the US and signalled that just one rate cut is to be expected by the end of the year. In the UK, the next policy rates announcement will be held on 20 June 2024 and the markets have priced in at least one rate cut by the end of the year. 

Five-year sovereign debt yields were down marginally in the UK and US by 0.5% and 0.2% respectively, and up marginally by 0.1% to 2.7% in the Eurozone during May 2024. In the UK, the most recent data on annual CPI inflation shows that it has fallen to its lowest level in almost three years, as prices rose by 2.3% in April 2024, down from 3.2% in March 2024. Inflation is also trending in the right direction in the US, down from 3.8% in March 2024 to 3.6% in April 2024. CPI inflation is expected to return closer to the 2% target by the end of the year across all three regions, mainly due to the unwinding of energy-related base effects.