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

M&G Credit Income Investment TrustAnnouncement

14/02/2025 10:15

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

14-Feb-2025 / 10:13 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 31 December 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

In the final quarter of 2024, major central banks maintained their path of  monetary policy easing, despite modest inflationary upticks. In the US, headline inflation edged  up
to 2.7% in the 12 months to November, a slight increase from 2.6% a month earlier. The UK's 12-month headline inflation rate climbed to an 8-month high of 2.6% in November,  up
from 2.3% in October. The eurozone also reported a rise in inflation in November:  prices rose 2.3% year-on-year, up from 2% in October. During the period, the Federal  Reserve
(Fed) reduced its key interest rate by 25 basis points (bps) twice, taking it to a range of 4.25% to 4.5%. The decisions were driven by indications of moderating inflation  and
a weakening labour market. The European Central Bank (ECB) implemented two 25bps cuts, lowering  the deposit rate to 3%, while the Bank of England (BoE) reduced interest  rates
from 5% to 4.75% in November.

Aside from the toing and froing of interest rate expectations, the main market  narrative during the quarter centered around UK and US politics, in particular the  implications
of confirmed and prospective fiscal policies on future debt issuance and sustainability. In the more immediate term, investor concern focused on what these policies could  mean
for the path of monetary policy.  A ‘tax and spend’ budget by the new Labour  government sparked concerns over growth and inflation and put pressure on UK gilts yields. In  the
US, the presidential election on the 5th of November resulted in a victory for Donald Trump. In addition, the Republican party took control of the House of Representatives  and
the Senate, allowing the president-elect greater scope to  enact policy plans. This left financial markets digesting  the implications for US foreign and economic policy,  with
Trump announcing plans to impose tariffs on Europe, China, Mexico and Canada. Taking  a backseat somewhat to events across the Atlantic, continuing political turmoil in  France
and Germany eventually led to the collapse of their respective governments as we approached the year end.

Manager Commentary

In the fourth quarter, the Company’s performance was hindered by two idiosyncratic and unrelated instances of credit distress involving separate private issuers. This led to  a
mark down equivalent to 1% of NAV, which resulted in a quarterly NAV return of 1.70% compared to 2.24% returned by the benchmark. Despite this, the portfolio performed in  line
with the ICE BofA European Currency Non-Financial High  Yield 2% Constrained Index (+1.72%), whilst outperforming comparable  investment grade fixed income indices such as  ICE
BofA Sterling Corporate and Collateralised Index (-0.36%), and the ICE BofA 1-3 Year BBB Sterling Corporate Index (+1.01%).

Despite the political  volatility, credit markets  remained relatively stable.  In the UK,  in spite of  the inflationary implications  of the Autumn  budget, investment  grade
sterling credit performed strongly, with spreads ending the period at almost 3-year lows.  This continues to be a technically driven grind tighter, with the appetite for  fixed
income showing no sign of abating as investors look to  lock in attractive all-in yields. In the portfolio, credit spreads  of Tier 1 and 2 financials continued to compress  on
the back of strong appetite  for risk, with higher beta,  sterling investment grade bonds that  had slightly lagged the year’s  rally, outperforming. Our remaining exposure  to
Scandinavian and European REITS continued to rally on the back of the loosening financial conditions/lower rates narrative, and we took the opportunity to lock in healthy gains
by selling CPI  Property whilst also  exiting our Heimstaden  position. We also  sold down two  bonds on credit  concerns as we  looked to further  de-risk the portfolio:  With
continuing turmoil and uncertainty in the water sector, the picture developing at Southern  Water had begun to look rather bleak, displaying similarities to the unravelling  at
Thames, and we saw little reason to retain what was  a relatively small position for us. In addition, our Credit  Agricole AT1 bond was trading inside our yield target and  had
tightened a decent  amount since being  purchased at  new issue. Given  the aforementioned weakening  in French  risk, pressure on  the sovereign rating  and notable  political
instability, we decided to sell down our holding and lock in a capital gain. We  received repayments from our positions in ANCHE 8X, MARGAY 1X (both CLOs) and RIN 2019-1A  (one
of our illiquid ABS holdings), redeploying funds into high grade ABS collective vehicles whilst we wait to invest in higher yielding private opportunities.

In the private market, we committed a combined £3.3m in three new assets. These  were the senior tranche in a securitisation backed by microfinance loans with inherent  support
from development banks and supranational agencies (£1.75m), the mezzanine tranche in an SRT transaction backed by a diversified portfolio of UK SME loans (£0.75m), and a Direct
Lending transaction participating in a term loan to the leading laundry service provider in Germany (£0.8m).

Outlook

At a macro level, the re-election of Donald Trump has created an elevated level of  uncertainty for the global economic outlook. Whilst it could be argued that a straight  line
assumption between trade tariffs and higher inflation is too linear, a more definitive assertion is that their implementation will certainly make the mandate for central  banks
to return inflation to target more complicated.  The expected result is for a  more cautious approach to cutting interest rates  than had been previously assumed by  investors,
particularly in the case of the  Fed. Financial market theory would  tell you that an increase in  economic uncertainty leads to investors  taking more risk-off the table,  but
there has been little evidence of  this in credit markets, as attractive  all-in yields have continued to drive  demand which is significantly outstripping corporate  issuance.
This has led to the level  of compensation on offer for taking  credit default risk, in our opinion,  being at odds with the outlook  for the UK economy, which faces  headwinds
including higher business taxation, Trump 2.0 tariffs, and the prospect of reaccelerating inflation and higher for longer interest rates. This hugely uncertain economic outlook
warrants a cautious, patient and disciplined approach  to investing and favours active management.  In such times, our ability to invest  across the breadth of both public  and
private fixed income markets  distinguishes the Company in  being able to seek  out attractive risk-adjusted returns  for our investors. With  the public corporate bond  market
offering scant risk-adjusted value relative to our return target, our focus in the early part of 2025 will be to sell down tighter yielding public credits and redeploy proceeds
into higher yielding private investments. We begin  2025 with a healthy and diverse pipeline  of private investment opportunities which we hope  to add to the portfolio in  the
coming months.

 

 

 

MUFG Corporate Governance Limited

Company Secretary

 

14 February 2025

 

 

 

- 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.:  376172
   EQS News ID:   2086525


    
   End of Announcement EQS News Service

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