February 2021 Monthly ReportCapspace Private Lending Fund
Strong consistent returns generated from a well-managed portfolio
Every month the Directors review our SME loan portfolio in detail to protect all of our investments. Our portfolio remains in order with all loans performing as documented. The Loan to Value Ratio (LVR) improved to 43% over the month. This movement was driven by Capspace obtaining more security to cover existing loans as part of broader customer debt restructures.
The Reserve Bank of Australia (RBA) official cash rate remains at 0.10%, a record low. Recent RBA statements support the maintenance of this low interest rate environment for the foreseeable future, with a particular focus on achieving much lower levels of unemployment.
By supporting SME businesses, Capspace at an 8% per annum yield, is paying over 20 times the interest rate of current major bank 12-month term deposits, with the interest paid monthly into your account.
Significant uncertainty creeping into financial markets
February was a very interesting (and at times chaotic) month for financial markets. You may have read about a US share market stock called Gamestop.
Gamestop is an American video game, consumer electronics, and gaming merchandise retailer whose share price went from $40 to a peak of $483 (1000% gain) and back down to $40 during the month. This frenetic volatility was driven by online speculation amongst amateur share traders, many of whom would have lost most of their investment.
Everyone is talking about Bitcoin, a cryptocurrency, that as yet has no role to play in global finance other than as a speculative asset. The price of Bitcoin has gone from $35,000 to $58,000 and back to $45,000 in February. Bitcoin has also drawn the attention of new and unsophisticated investors and concern continues to grow of a financial bubble.
Finally, financial markets are starting to get concerned about inflation driven by record levels of global fiscal stimulus, with 10-year bond yields in Australia doubling in February from 0.90% to 1.80%.
This speculation and uncertainty are what investors in Capspace can avoid. An investment in Capspace delivers stable sustainable returns backed by security over real assets, keeping our investments safe. As uncertainty & volatility in financial markets continues to unfold more investors understand the importance of Capspace’s Fund.
Business confidence continues to grow
The NAB SME Business Survey for Q4 2020 was released in February. Small and medium businesses reported a sharp improvement in business conditions and confidence in Q4 2020, with SME confidence reaching its highest level since the survey began in 2006.
Business conditions were less elevated but rose to be around the strong levels last seen in 2018. According to Alan Oster, NAB Group Chief Economist: “The survey shows the economic recovery so far has also supported our SME sector – a very positive sign for the economic recovery.” Further, Mr Oster said “SME business confidence is at a record high as activity bounces back from the pandemic-driven lows of last year.”
This improvement in SME confidence is driving strong demand for funding. SMEs look to Capspsace for support as Banks take too long or place too many conditions on borrowers. Our loan portfolio is growing strongly. To fund this strong demand for SME loans we are always seeking new investors, that want to back SMEs while receiving a sustainable high yielding investment return.