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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
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Overview

M&G Credit Income (MGCI) generates an income linked to interest rates by investing across public and private fixed income markets, including into areas it is hard for mass market investors to access elsewhere. It has two key advantages over the typical strategic bond fund, to which it can be thought of as an alternative. The first is that most of its income (85% of the portfolio as of the end of August) is generated from floating rate assets, and therefore rises as central banks raise interest rates. The second is that it uses the investment trust structure to provide liquidity (via tradeable shares) to a predominantly illiquid underlying Portfolio, which has been constructed using M&G’s broad expertise across institutional and private fixed income markets. This allows MGCI to invest in private assets that have strong credit quality characteristics but which typically offer higher yields than those available in the public investment grade markets.

MGCI targets a Dividend of SONIA plus 4%. Dividends are paid quarterly with historically a larger payment for the last quarter of the financial year (which ends in December). As a result, the steady increase in SONIA we have seen this year means the historic yield may be underestimating the income investors will receive – especially if rates continue to increase. Floating rate investments also contribute to the very low duration on the portfolio, which was 1.5 years at the end of August, meaning that MGCI has minimal price exposure to rising interest rates compared to conventional bond funds.

The trust is managed by Adam English, who draws on the investment-specific work of almost 300 professionals, including many specialist teams focussed on esoteric asset classes. Adam aims for an average investment grade quality portfolio with a substantially higher yield than investment grade corporate bonds – often in line with that available on high yield bonds, although spreads have widened considerably in that market this year.

Analyst's View

MGCI looks tailor made for the current economic environment in which a rate hiking cycle is underway and high yield credit looks risky due to the potential for recession. The floating rate exposure means the income available for distribution should be rising while prices in the Portfolio should have limited negative impact from the rate hikes. MGCI does have credit risk, which means if spreads widen there will be some negative impact to the NAV, but Adam’s cautious approach to Management and the high average credit rating in the portfolio should mean this impact is limited.

Over the course of 2022, SONIA has increased from 0.19% to 1.69%. With two dividends remaining to be paid for this year, this means there is the potential for a substantially higher payout than might have been expected at the start of the year. In fact, on an annualised basis the target payout of SONIA plus 4% equates to almost 6%. This compares favourably to most of the alternative income options in the investment trust space. MGCI offers this income from a well-diversified portfolio by sector, geography and issuer, plus average investment grade credit quality and low interest rate sensitivity.

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
  • High-yield bond funds may yield more at times
Continue to Portfolio

Fund History

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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