REG-M&G Credit Income Investment Trust plc Quarterly Review

M&G Credit Income Investment TrustAnnouncement

31/10/2024 13:00

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M&G Credit Income Investment Trust plc (MGCI)
Quarterly Review

31-Oct-2024 / 12:55 GMT/BST

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M&G CREDIT INCOME INVESTMENT TRUST PLC

 

(the “Company”)

 

LEI: 549300E9W63X1E5A3N24

 

Quarterly Review

 

The Company announces that its quarterly review as at 30  September 2024 is now available, a summary of which is  provided below. The full quarterly review is available on  the
Company’s website at:

 

 1 https://www.mandg.com/dam/investments/common/gb/en/documents/funds-literature/credit-income-investment-trust/mandg_credit-income-investment-trust_quarterly-review_gb_eng.pdf

 

Market Review

The global economy began to stabilise over the third  quarter, with easing inflation prompting major central banks to  cut interest rates from their previous highs. In the  US,
headline inflation reached the lowest level in over three years as the consumer price index rose 2.5% year-on-year in August, down from 2.9% in July. The UK’s 12-month headline
inflation rate held steady at 2.2% for both July and August. Headline inflation in the eurozone continued its downward trend, falling from 2.6% in July to 2.2% in August.  With
inflationary pressures continuing to subside, the strength of the  labour market proceeded to take centre stage. At  their meeting in July, Fed officials acknowledged that  the
dual mandate of reducing inflation and maintaining stable employment was now becoming more  balanced in focus, admitting that the labour market may be nearing a turning  point.
Indeed, an unexpectedly  weak July US  jobs report contributed  to a “blink  and you missed  it” episode of  market volatility at  the start of  August, fueled by  decelerating
macroeconomic indicators, shifting global monetary  policy expectations and sharp  movements in the Japanese yen.  September saw the Fed  finally deliver it’s much  anticipated
first rate cut of this economic cycle, opting  for a bumper 0.5% reduction in their  policy rate which went against market consensus  for a more constrained 0.25% cut. The  ECB
then followed by  delivering a much  more widely anticipated  0.25% interest rate  cut of its  own, which preceded  the release of  weak Eurozone PMI  data indicating  economic
contraction across the bloc  which fueled wider growth  concerns. The quarter closed  with the Peoples  Bank of China (PBOC)  slashing a host of  Chinese market lending  rates,
triggering a bounce in domestic indices with a particularly positive knock on effect to European stocks with exposure to the region.

 

Manager Commentary

Having closely tracked its SONIA+4% benchmark  over the first half of  the year, the Company’s performance in  the third quarter was notably  hindered by an incident of  credit
stress occurring in one of the portfolio’s private  holdings. This led to a mark down  equivalent to 0.6% of NAV which resulted in  a quarterly NAV return of 1.61% compared  to
2.30% returned by the benchmark. This also contributed to underperformance versus comparative investment grade fixed income indices such as the ICE BofA Sterling Corporate  and
Collateralised Index (+2.34%), the ICE BofA  1-3 Year BBB Sterling Corporate Index  (+2.10%), and the ICE BofA European  Currency Non-Financial High Yield 2% Constrained  Index
(+3.48%).

 

In public bond markets, despite some  weakness in line with the  wider macro tone during the pronounced  (but short lived) bout of  volatility in early August, sterling  credit
spreads finished the period roughly unchanged. Within August’s short episode was in fact  a rather compelling endorsement of credit markets, as the small move wider in  spreads
remained relatively contained  despite wider market  tumult. The technical  in public bond  markets remains very  strong, with issuance  levels lagging the  pace of inflow  and
reinvestment which is keeping  credit spreads well anchored.  Whilst all-in yields  for corporate bonds are  attractive given the elevated  risk-free component, credit  spreads
remain at historically tight  levels and as  such we maintain a  bias towards reducing  risk. We sold  down our exposure to  Thames Water in  early September following  further
internal analysis upon which we concluded that  a resolution in which our bonds  wouldn’t take a significant haircut was  now looking increasingly remote. Subsequently, it  was
reported that Thames would face a liquidity crunch in December (previously thought to have enough cash to continue operating until May 2025) and rating agencies downgraded  our
previously held bonds to CCC+ from BB. We  also sold down our exposure to UK  REIT Hammerson Plc on relative value grounds  rather than credit concerns. The bond had  performed
very well for us since being  purchased at much wider levels in  mid-2022, tightening in to offer a  spread over cash which in our  opinion wasn’t commensurate with BBB+  rated
risk. In the portfolio, REIT names and credits with Real Estate exposure performed well during the period on the deeper and swifter rate cuts narrative, along with higher  beta
financials.

 

In the private market, we committed a  combined £4.8m across four new assets: Two  investment grade Real Estate transactions, one for  a loan secured against four prime  retail
warehouses in key Southeast and Midlands locations (£1.3m), and  the other, the senior tranche in a mortgage  secured whole loan providing financing against the development  of
two land plots in Woodford and  Enfield which will become logistics  warehouses (£1.5m). We also participated  in two Direct Lending deals,  the first a global manufacturer  of
waste recycling processes and equipment (£1m), and the second, a highly regarded small molecule drug manufacturer (£1m). During the quarter, we did an in-specie transfer of our
holding in the M&G Lion Credit Opportunity Fund IV to the newly launched M&G Investment Grade ABS Fund, which follows the same strategy but is daily rather than monthly dealing
and thus offers improved liquidity which is preferable in maintaining flexibility in the portfolio.

 

Outlook

At a global level, progress on inflation remains positive  and an economic soft landing continues to be the  consensus base case. However, this fabled “Goldilocks” scenario  is
threatened by geopolitical conflicts and fiscal uncertainty, whilst tepid growth (particularly in  Europe) and rising trade barriers are also headwinds we remain cognisant  of.
As we enter the final quarter of the year, the rate setting policies of global central banks are poised to remain the dominant driver of financial markets.

 

Geopolitical risk remains elevated, as it has been persistently throughout the year. In the US, although we will see a newly elected President come November, the market’s  main
sensitivity is to the government's wide  deficit and elevated debt levels which  are forecast to increase regardless of  whether Democratic nominee Kamala Harris or  Republican
nominee Donald Trump take the Oval Office. A second Trump  term would also threaten to heighten political risks arising  from a US-China trade war, as well as complicating  the
protracted conflict between Russia and Ukraine by ending US involvement and cutting aid.  In the Middle East, tensions have ratcheted up recently following a series of  attacks
that have drawn Iran into direct confrontation with Israel.  At a macro level, the potential effects on oil  supply and production in the region have increased concerns  around
inflation and seen the number of rate cuts that were expected a few months ago dialled back.

 

We remain positive on the outlook for investment grade credit, and given its yield  benefits and defensive characteristics, it is, in our opinion, an attractive asset class  to
be invested in at this point in the economic cycle. We also remain positive on  the outlook for the wider private credit market. Although credit spreads in public bond  markets
remain at historically tight levels, our flexibility in being able to invest across a diverse range of alternative asset classes and private credit can help continue to deliver
a particularly attractive return premium to public markets. After a busy year for private market activity, we are still seeing a strong pipeline of investment opportunities  as
we approach the year end, a number of which are moving through to late stage and which we hope to transact on in the coming months.

 

 

Link Company Matters Limited

Company Secretary

 

31 October 2024

 

 

 

- ENDS -

 

 

 

 

 

The content of the Company’s web-pages and the content of  any website or pages which may be accessed through  hyperlinks on the Company’s web-pages, other than the content  of
the Update referred to above, is neither incorporated into nor forms part of the above announcement.

 

 

 

For             further             information              in             relation             to              the             Company             please              visit: 
 2 https://www.mandg.com/investments/private-investor/en-gb/investing-with-mandg/investment-options/mandg-credit-income-investment-trust

 

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The issuer is solely responsible for the content of this announcement.

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   ISIN:          GB00BFYYL325, GB00BFYYT831
   Category Code: MSCL
   TIDM:          MGCI
   LEI Code:      549300E9W63X1E5A3N24
   Sequence No.:  356425
   EQS News ID:   2020253


    
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