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
A new version of this profile is available. View Latest
Overview

M&G Credit Income (MGCI)’s dividend policy sees it pay out a quarterly dividend linked to interest rates, which means the income it delivers rises as interest rates do. After a sharp rally in the Bank of England base rate, annualising the most recent dividend gives a potential prospective share-price yield of 8.5% (see Dividend). While high-yield bonds are also delivering high yields, this is with much more credit risk – MGCI has a portfolio which is mostly of investment-grade quality – and to get to a position where they are paying out such high yields, existing bonds or portfolios would have had to experience significant capital losses. In contrast, MGCI is run with very low duration, which means the price of its portfolio has been resilient in the face of rate hikes.

This attractive combination is achieved largely because the manager, Adam English, is able to invest in private debt, as well as having full flexibility to invest across public debt markets. M&G is a major investor across fixed income for its insurance and pension business, and has over a hundred analysts spread across multiple specialist sectors. It is able to lend to borrowers looking for bespoke deals or who wish to avoid the cost of public listing. These deals typically attract high yields, which reflect the complexity involved with acting outside public markets and the extra illiquidity of the investments. However, the credit quality of the borrower may be high, meaning the chance of default is potentially low (see Portfolio).

MGCI has delivered steady total returns since launch, gains coming from the high income paid out (see Performance). Dividends have been rising in recent quarters as the base rate does too, and the outlook is for further increases which would feed through directly into the income earned. MGCI’s shares are on a 4.4% discount at the time of writing.

Analyst's View

We think MGCI is a highly attractive option for those seeking to earn a high income. The linkage of the dividend to interest rates is obviously attractive in the current environment, while the low duration of the portfolio means that investors minimise one of the key drawbacks of investing in fixed income – the potential for capital losses when rates rise. The high credit quality of the portfolio, defensiveness as to sector positioning and cautious attitude to gearing (currently no gearing is held) are additional factors on which MGCI is less risky than the typical bond fund. On the other hand, the complexity of the underlying instruments and their illiquidity does bring risks. We think M&G are as well-placed to manage them as anyone, given their expertise in private debt.

Many investors have come to believe a peak in interest rates is near. This may be true, but it is worth remembering that if rates are cut, while the income earned by the trust will be cut, the capital values will hold up. And if rates remain higher for longer, MGCI will continue to deliver a high income. Over August this year, markets saw another sell-off in rates as inflation seemed to be more persistent than feared. We think this is a good reminder that risks remain of a sell-off in high duration assets. MGCI is a rare example of a low duration asset offering an exceptional yield.

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

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...
View all

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.