SMIF

TWENTYFOUR SELECT MONTHLY INCOME FUND LIMITED

Annual Report and Audited Financial Statements

For the year ended 30 September 2023

The Directors of TwentyFour Select Monthly Income Fund Limited (the “Company”) announce the results for the year ended 30 September 2023.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

• NAV per share of 75.44 pence (FYE 30/09/22: 69.99 pence)
• Total Net Assets of £181.69 million (FYE 30/09/22: £151.33 million)
• Dividends declared for the year of 7.37 pence per share (FYE 30/09/22: 6.39 pence per share)
• Total Return of 17.54% (FYE 30/09/22: -18.94%)

Eoin Walsh, Partner & Portfolio Manager at TwentyFour Asset Management, said: “The rising rate environment resulting from global inflation has enabled us to position the TwentyFour Select Monthly Income Fund Limited positively over the period. The strong NAV performance coupled with a focus on the credit quality of the portfolio positions has left the Company well placed for the next stage of the cycle.”

Ashley Paxton, Chairman of TwentyFour Select Monthly Income Fund, said: “We are very pleased to present the audited financial statements for the Company, which demonstrate how the TwentyFour Select Monthly Income Fund Limited has delivered a Total Return of 17.54%, including dividends declared of 7.37 pence per share. We are also pleased to reflect on the share activity for the period, having traded at or around NAV (within a c4.5% tolerance above and below NAV) throughout the year to 30 September 2023, at a time where the majority of the investment company market saw significant discounts.”

SUMMARY INFORMATION

The Company

TwentyFour Select Monthly Income Fund Limited (the “Company”) was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 February 2014. The Company’s Shares were listed with a Premium Listing on the Official List of the UK Listing Authority and admitted to trading on the Main Market of the London Stock Exchange (“LSE”) on 10 March 2014.

Investment Objective and Investment Policy

The Company’s investment objective is to generate attractive risk adjusted returns, principally through income distributions.

The Company’s investment policy is to invest in a diversified portfolio of credit securities.

The portfolio can be comprised of any category of credit security, including, without prejudice to the generality of the foregoing, bank capital, corporate bonds, high yield bonds, leveraged loans, payment-in-kind notes and asset-backed securities and can include securities of a less liquid nature. The portfolio is dynamically managed by TwentyFour Asset Management LLP (“TwentyFour” or the “Portfolio Manager”) and, in particular, is not subject to any geographical restrictions.

The Company maintains a portfolio diversified by issuer and comprises at least 50 credit securities. No more than 5% of the portfolio value will be invested in any single credit security or issuer of credit securities, tested at the time of making or adding to an investment in the relevant credit security. The Company may hold up to 10% in cash but works on the basis of an operational limit of 5% and any uninvested cash, surplus capital or assets may be invested on a temporary basis in:

• cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a “single A” or higher credit rating as determined by any internationally recognised rating agency which may or may not be registered in the EU; and

• any “government and public securities” as defined for the purposes of the Financial Conduct Authority (the “FCA”) Rules.

Efficient portfolio management techniques are employed by the Company, and may include currency and interest rate hedging and the use of other derivatives to manage key risks such as interest rate sensitivity and to mitigate market volatility. The Company’s currency hedging policy will only be used for efficient portfolio management.

The Company does not employ gearing or derivatives for investment purposes. The Company may use borrowing for short-term liquidity purposes, which could be achieved through arranging a loan facility or other types of collateralised borrowing instruments including repurchase transactions and stock lending. The Articles restrict the borrowings of the Company to 10% of the Company’s Net Asset Value (“NAV”) at the time of drawdown. No arrangements for borrowing are currently in place.

At launch, the Company had a target net total return on the original issue price of between 8% and 10% per annum. This comprised a target dividend payment of 6p per share per annum and a target capital return of 2p-4p, both based on the original issue amount of 100p. Whilst there is no guarantee that this can or will be achieved, the 6p per share Dividend Target has consistently been met.

In accordance with the Listing Rules, the Company can only make a material change to its investment policy with the approval of its Shareholders by Ordinary Resolution.

CHAIRMAN’S STATEMENT

For the year ended 30 September 2023

As Chairman to the TwentyFour Select Monthly Income Fund Limited, I am delighted to present my first report on the Company’s progress for the year ended 30 September 2023.

Market Overview

Central bank activity, higher inflation data, continuing low employment rates and the upward pressure on wages have been the biggest driver for much of the year as central banks implemented more rate hikes and market participants watched closely for signs that inflation was moving back towards target. Towards the end of the year to 30 September 2023, central banks seemed to be approaching or were already at terminal rates for the cycle, allowing existing rate increases to feed through and to continue to bring inflation closer to target. Labour markets and other economic data remained resilient, leading to some market participants to call for a soft-landing. However, in our view, with central banks maintaining their “higher for longer” messaging, there is an increased likelihood of more cracks appearing in the global economic picture.

Towards the end of the year, volatility in the rates market was driven by strong economic data and concerns over budget deficits together with increased supply and term premiums. This volatility led to a modest softening in credit spreads towards the end of the period.

Generally, earnings remained resilient, particularly in the European banking sector where banks maintained strong capital levels and low non-performing loans (“NPLs”) and called and issued Additional Tier-one bonds (“AT1s”) as expected, post the collapse of Credit Suisse.

With the bouts of volatility over the period, there is a lot of value in the portfolio, with many of the Portfolio Manager’s favourite names and bonds trading at very attractive levels.

The Portfolio Manager also sought to increase the credit quality of the portfolio by continuing to conduct relative value switches, which served to improve the yield and extend duration to lock in the available attractive yield levels.

Outlook

The Portfolio Manager’s base case is for a “soft-ish” landing whereby it expects a short and shallow recession and for the unemployment rate and default rates to increase moderately. We expect to see a deterioration of economic fundamentals as the lag effects of the many interest rate increases feed through economies, leading to a mild recession as the economy is supported by strong consumers, corporates and banking sector. This should give central banks the ability to cut interest rates later in 2024.

The Board believes there is a lot of value in the portfolio and the very attractive yields offer good protection against future volatility and the Portfolio Manager is actively adjusting the portfolio to find better opportunities for value, in order to optimise the Company’s performance.

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The dividend is fairly secure, they occasionally pay an increased dividend in April which was already declared before the Trust was bought for the portfolio.

Pays a monthly dividend, which can be re-invested but as always best to DYOR.