Fund Profile

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by M&G Credit Income. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
MGCI’s floating rate exposure means its yield should rise as interest rates do…
Overview

M&G Credit Income (MGCI) offers investors an income linked to interest rates, aiming to generate a yield of at least 4% over the interbank rate. The trust invests across the fixed income universe, in private debt as well as public, offering exposure to sectors more commonly available to institutional investors. One of the key benefits of the strategy is it offers the income of a high yield bond fund from assets with an investment grade rating on average – this is made possible by investing in private markets where higher yields are on offer for those who can take the complexity and liquidity risks.

MGCI is managed by Adam English, who draws on the research of over 295 investment professionals across M&G’s fixed income teams. Adam can invest across the public debt markets, but MGCI’s key differentiating factor is his ability to invest across private markets. This includes well-established structures, such as various types of asset-backed security (ABS), as well as bespoke financing deals that M&G is able to originate in cooperation with the borrower. As we discuss under Portfolio, there are a number of features of MGCI which contribute to low NAV volatility and lower risk than high yield credit funds: high levels of diversification, predominantly investment-grade assets and high levels of asset-backing.

Much of the portfolio is floating rate, which means the income available to pay the Dividend should rise as central banks raise rates. This also contributes to the low duration, which is just over one year, protecting the portfolio from capital losses as rates rise, in contrast to conventional bond funds (as demonstrated in Performance).

The board has a policy of using buybacks or issuance to keep the shares trading close to NAV. At the time of writing, the Discount was 1.3%.

Kepler View

MGCI looks like an attractive way for income-seekers to diversify their Portfolio and, at the current juncture, looks to have some key advantages over conventional bonds. The low duration and linkage of the income account to interest rates should prove helpful if central banks continue the hiking cycles they have started. While the trust is exposed to widening credit spreads, Adam has reduced the credit risk in the portfolio over the past two quarters in expectation of spread widening and stands ready to add risk back when valuations are sufficiently attractive. In the meantime, the trust’s high credit rating means it is less exposed to a worsening credit market than a conventional bond fund with a similar yield.

MGCI pays four Dividends a year, with the final one expected to be substantially larger. This year’s dividends could be substantially higher than last year, particularly if we see rate hikes in the major economies. The yield achieved for buying on a small discount could therefore be higher than 4.1%. There are higher historic yields available on renewables and infrastructure trusts, but one of the key advantages MGCI has is diversification: well over 100 individual investments are diversified by geography, sector and issuer and spread across various segments of the fixed income markets. Furthermore, the average investment grade quality credit, liquidity in the portfolio and ability of the manager to de-risk or gear up as market conditions change provide advantages.

Bull

  • High yield linked to interest rates with average investment grade quality credit
  • Offers access to private debt markets, providing attractive risk/return characteristics and diversification
  • NAV should prove resilient due to many defensive characteristics

Bear

  • Complexity makes it harder for investors to understand exposures
  • Limited capital gain potential
  • Higher yielding options available
Continue to Portfolio

Fund History

31 May 2022 Five alternative trusts for income investors
Slides and audio from our event last week, featuring five trust managers discussing different strategies to deliver income for shareholders in challenging market conditions...
27 May 2022 Slides and Audio: M&G Credit Income
Download the presentation and listen to the audio from our 'Alternatives for income investors' virtual week from 23 May...
29 Apr 2022 Five trusts to diversify your portfolio income
Join us next week for one live webinar with a different manager every day of the week – including the chance to ask questions - focused on different solutions for those seeking a decent income…
13 Apr 2022 Fund Analysis
MGCI’s floating rate exposure means its yield should rise as interest rates do…
06 Apr 2022 Private markets: A closer look at the expanding private debt opportunity
We look at the attractions of the private debt market, historically the hunting ground of the institutional investor…
19 May 2021 The complexity premium
We examine the idea that extra returns can be obtained from buying investments which are perceived to be more complex by most investors...
12 May 2021 Riders on the storm
We look at the yields in the alternatives space and how they have been affected by the pandemic…
26 Mar 2021 Fund Analysis
MGCI offers a high yield with low asset value volatility, low duration and an investment grade rating…
06 Mar 2019 Stairway to heaven
Our research shows that reinvesting the income generated by alternative assets could add a significant boost to long-term portfolio performance…
05 Mar 2019 Fund Analysis
M&G Credit Income Investment Trust launched in November 2018 and targets a dividend yield of LIBOR plus 4% per annum...
24 Oct 2018 Fund Analysis
An opportunity to invest in sectors usually restricted to institutional investors with a LIBOR plus 4% dividend...
View all

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