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

M&G Credit Income Investment TrustAnnouncement

Tue 12:00

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

29-Apr-2025 / 11:54 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 March 2025 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

Financial markets experienced significant  turbulence and volatility in  the first quarter  of 2025, as investors  reacted to President Trump's  tariff campaign, fiscal  policy
shifts in Europe and  a ground-breaking new  Chinese AI model. Economic  growth in most  major economies slowed considerably,  reflecting the impact  of uncertain global  trade
policies and fluctuating market conditions, and despite moderating, inflation in major economies remained above central bank targets. The US economy experienced a deceleration,
with GDP growing at an  annual rate of 2.4% from  October to December, down from  3.1% in the prior  quarter. In the UK, GDP  grew by 0.1% in the  fourth quarter of 2024  after
remaining stagnant in the third quarter. Companies began reporting higher prices and waning demand, echoing a number of economists’ forecasts which highlighted the growing risk
of stagflation and rising odds of  recession. Reflecting the spike in  negative sentiment, in March US consumer  confidence fell to the lowest  level in four years as  economic
concerns and economic policy uncertainty took its toll.

 

The America First Policy Directive of the Trump administration also saw the suspension of  all military US aid to Ukraine whilst numerous negative soundbites cast doubt on  the
US’s willingness to defend its NATO allies. This prompted a drastic reprioritisation of defence spending in Europe with direct implications for greater government borrowing  by
EU bloc members. Germany announced a historic fiscal package and debt brake change which will allow for higher defence and infrastructure spending and is expected to  stimulate
economic growth and address the country's contracting economy. 10-year bund and gilt yields  both reached their highest levels in over a year, with the former experiencing  its
sharpest one day sell-off since German reunification in 1990. The most notable event of the quarter in the UK was Chancellor Rachel Reeves’ Spring Statement. In contrast to the
Autumn budget, it was largely positively received by markets, containing substantial spending cuts.

 

Manager Commentary

In the first quarter of the year the Company delivered a NAV total return of +1.36% compared to the +2.13% returned by the benchmark. Underperformance was driven by a softening
in credit which saw spreads  widen over the period, as  markets digested tariff implications and  expectations for weakening growth resulting  from a global trade war.  Despite
this, the portfolio performed approximately in line with the ICE BofA 1-3 Year BBB Sterling Corporate Index (+1.54%), whilst outperforming both the BofA Sterling Corporate  and
Collateralised Index (+0.54%) and the ICE BofA European Currency Non-Financial High Yield 2% Constrained Index (+0.69%).

 

After a positive start to the year, credit spreads  moved consistently wider from February onwards as risk-off sentiment  took hold. However, such widening should be viewed  in
the context of longer-term historical levels, with credit spreads only retracing the grind tighter we saw in late 2024, having reached post-GFC tights in January of this  year.
We have started to see more daily volatility, with the tariff headlines creating notable uncertainty and the credit markets generally feeling nervous despite remaining orderly.
However, the lack of more severe  price action during the quarter  suggests market participants are still  presuming that through negotiations the  worst of the tariffs can  be
avoided and indeed we are far from episodic levels despite the steady bleed wider in credit spreads.

 

Despite the volatility in public bond markets,  having come into the year defensively positioned  (as we have been for some time  on relative value concerns), we were happy  to
maintain our focus on deploying capital into private assets, investing £7m across 4 assets during the quarter. Two of these were taps of existing facilities which we know well:
A securitised note backed by an agricultural lending programme and a senior floating rate tranche in a microfinance debt fund backed by DFIs (Development Finance  Institutions)
where we took the opportunity to upsize our holding. The third was a Direct Lending loan to a UK hospitality chain which operates all-day cafes, bars and restaurants across the
UK. We also deployed an additional £3m into the M&G European Loan fund  as we like the defensive characteristics provided by diversification in the underlying portfolio  whilst
the vehicle also gives access to the the return benefits available in the leverage loan market.

 

During the quarter, the Company increased its market cap by £6.5m following a successful placing and retail share offering. We have initially invested the additional cash  into
the AA-rated M&G Investment Grade ABS fund whilst we wait for a number of private transactions which we have already indicated appetite for, to fund in Q2.

 

Outlook

After decades of relatively stable geoeconomics, characterised by increasing globalisation, recent political developments represent a rather seismic paradigm shift, ushering in
a new phase of what can be termed “geoeconomic fragmentation”. The trade and  defence policy shifts of the Trump administration have upended the well established  international
order, enacting a global economic realignment  which is seeing historical alliances reshaped.  The already rapid escalation of President  Trump’s tariff war has seen a  notable
weakening in US equity and credit, with uncertainty on the extent of the tariffs and the scope of retaliatory action, spooking investors and causing market volatility to spike.
Financial markets are  still in the  nascent stages of  comprehending the  impact to global  trade and what  shape the  new world order  will take, however  the chaotic  policy
“yo-yoing” from the US makes assessing this with any degree of accuracy virtually impossible at this point in time.

 

Whilst the longer term consequences of tariff tremors and  the extent to which second order effects will ripple  through the broader economy are difficult to quantify, when  it
comes to investing in credit we will continue to  follow the same fundamentally driven, bottom-up and value-based  investment approach we always have. Within this framework  we
will look to deploy capital into assets we expect to perform and be resilient through any market cycle. Whilst tariff uncertainty adds a complex dynamic to such an  assessment,
our experience in credit markets and deep internal research  capability leaves us well positioned to navigate these  choppy waters. We would note, however, that despite  recent
spread widening (and a more notable acceleration  post the quarter end following the  sweeping tariff hikes announced on “Liberation  Day”), viewed over a longer term  horizon,
public sterling credit is still screening expensively and there remains a distinct lack of compensation for default risk currently priced into investment-grade credit  spreads.
Our expectation for wider macro uncertainty to continue to weigh on markets means we intend to keep the portfolio defensively positioned in the near term. Should credit spreads
continue to widen, we may be presented with an attractive re-entry point to reengage meaningfully with the public market, should the returns on offer move slowly into alignment
with our own views of relative value.

 

We believe that during times of market volatility our flexibility in being able to invest across the breadth of both public and private markets can be a powerful differentiator
in generating what  we feel  are the most  attractive risk-adjusted  returns for our  shareholders. 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. Should  further market volatility give  rise to attractive opportunities, we  have access to a  £25m
credit facility and a further £32m invested in two AAA/AA-rated, daily dealing ABS funds, ready to be reallocated.

 

 

MUFG Corporate Governance Limited

Company Secretary

 

29 April 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.:  385392
   EQS News ID:   2126748


    
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