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Axiom European Financial Debt Fund

LN: AXI

Market Cap£82m

Last Close 89p

AXI is a Guernsey-domiciled, London-listed, closed-end fund investing in regulatory capital securities in Europe. It seeks opportunities presented by Basel III and Solvency II transitions. It has a diversified approach across a broad range of subordinated debt issued by financial services companies. It uses five sub-strategies to obtain attractive current income and capital gains. AXI has a target return of 10% pa over seven years.

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Investment summary

Axiom European Financial Debt Fund (AXI) is a closed-end fund that invests in European financials regulatory capital. If a bank’s operations and equity position are robust enough to withstand shock asset losses, these instruments can provide a way to earn a premium return. Despite volatile and declining markets, AXI had a total return of 6% in the last 12 months, outperforming the ICE BofA euro financial and European high yield indices. The deteriorating macroeconomic outlook means higher loan impairments are likely, but we feel this is mostly an equity story and that, for the majority of banks, the regulatory capital instruments in which AXI invests will not be called on to absorb asset losses, allowing AXI to benefit from their premium yields. The portfolio has an 8.4% running yield, 9.7% to perpetuity. AXI is trading on a 9% net asset value (NAV) discount with a 6.7% dividend.