M&G Credit Income (MGCI)

M&G Credit Income (MGCI) is one of the successes of the investment trust sector of the past five years. The compelling attractions of its very high yield, achieved without gearing and with low NAV volatility, have seen it consistently trade on a premium and issue new shares into the market. The trust’s shares yield 8.5% at the time of writing on a historical basis, while taking minimal interest rate risk (duration) and most importantly having a solid investment-grade credit profile, which sets it apart from many other funds offering similar yields (see Dividend). The portfolio is of average investment-grade quality, while MGCI is also completely ungeared.

Manager Adam English can achieve all this thanks to the uniquely diverse set of options he has; he can invest across the public and private-debt markets, wherever the huge M&G fixed interest teams operate. Over the past year, Adam has been finding plenty of attractive opportunities in the private-debt markets, able to lend to projects backed by Magnificent seven revenues (see Portfolio) or high-quality securitisations which offer exceptional yields, all within the context of public-debt markets, which are expensive and hence vulnerable to any credit shocks.

However, he has also been allocating heavily to high-quality, liquid, and lower-yielding ABS and Loan funds. With credit markets looking expensive and private deals taking a long time to finalise, Adam is happy to let liquid assets build up and wait for better opportunities. This cautious approach is in stark contrast to the private-debt funds, which have recently run into trouble in the US, and have a very different and much riskier model than MGCI.