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 offers an exceptionally high yield from a portfolio of high credit quality...
Overview

M&G Credit Income (MGCI) offers an exceptionally high yield without taking on the credit risk that most bond funds would have to do in order to achieve this – and without the use of gearing. Manager Adam English is able to do this thanks to the exceptionally flexible remit, which allows him to invest across the more complex and illiquid areas of the credit markets, including private debt, bringing the full weight of M&G’s institutional expertise and resources to bear in a rare mass-market vehicle. The portfolio is highly diversified across loans, asset-backed securities and private placements, not to mention the more well-travelled fixed-income sectors.

MGCI is currently delivering a handsome yield of 9.3%. The portfolio is c. 75% invested in floating-rate debt, and with the interbank rate SONIA at 5.2%, this is a major contributor. Roughly half the portfolio is in private debt, and Adam is looking for opportunities to add in this segment, with spreads on public debt looking unattractively narrow. However, he is being selective, and this, along with a recent acceleration in repayments of private debt in the portfolio, means the weighting has been slow to rise. In the meantime, higher-quality tranches of asset-backed securities (ABS) and collateralised loan obligations (CLOs) are offering attractive yields versus corporate bonds of worse credit quality.

Adam has a Gearing facility on hand, which allows him greater flexibility to take advantage of opportunities as they come up, but it is currently undrawn and the yield on offer is from an ungeared portfolio, unlike many of the other high yields in the investment trust space.

Analyst's View

Arguably, the current economic situation of high rates and positive economic growth is the sweet spot for MGCI’s strategy. High rates boost the yield achieved on the portfolio and positive growth means companies are able to fund their debt comfortably. Adam is able to generate an exceptionally high yield without taking too much risk: in credit, in complexity or in duration. A slow decline in rates would see a slow decline in income earned on floating-rate debt, but Adam is likely to have the ability to increase risk to earn extra spread, assuming this is an orderly and slow decline. On the other hand, a sharp cutting cycle in the major developed economies following a rapid deterioration of economic data would be negative for the portfolio, although this would largely be felt in relative rather than absolute performance due to the low duration, given the high credit quality of the portfolio. However, this seems like an unlikely scenario, given the current state of the US and UK economies, and in our view MGCI looks set to deliver high returns from a relatively low-risk portfolio for some time to come.

We think MGCI is a highly attractive option for those seeking to earn a high income at the current juncture. The exceptionally high yield is generated from a portfolio of investment-grade quality. Moreover, Adam has a number of levers to pull to boost the income further should market conditions see yields in higher-quality debt fall.

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, including from duration
  • Rate cuts will reduce portfolio income, absent offsetting investment decisions
Continue to Portfolio

Fund History

22 May 2024 Keep It Slightly-unconventional, Stupid
We argue a position in bonds should be diversified with alternatives…
03 Apr 2024 Tall poppies
We highlight those trusts having to print new shares to keep up with demand…
28 Mar 2024 Fund Analysis
MGCI offers an exceptionally high yield from a portfolio of high credit quality...
27 Sep 2023 Fund Analysis
MGCI offers an exceptional yield from a portfolio with low NAV volatility…
24 May 2023 Five alternatives for income investors
Watch the presentations from our event focused on trusts delivering income via a diverse range of strategies…
04 May 2023 Fund Analysis
MGCI is generating a highly attractive yield from a relatively low-risk portfolio…
15 May 2023 M&G Credit Income
Adam English
Rewatch this webinar from our online series in May 'Alternatives for income investors' hosted by the team at Kepler Trust Intelligence 15-19 May…
Watch Recording
16 Nov 2022 Bottom fishing
What can history tell investors about calling the bottom of a market?
19 Oct 2022 Gimme shelter
Our analysts examine safe havens and defensive strategies as we endure the market's 19th Nervous Breakdown...
27 Sep 2022 Fund Analysis
MGCI’s floating rate exposure means its yield should rise as interest rates do…
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…
22 Apr 2022 Bonds are back
BIPS and MGCI may benefit from higher interest rates…
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 target LIBOR plus 4% dividend...
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