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

M&G Credit Income Investment TrustAnnouncement

01/08/2025 12:00

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

01-Aug-2025 / 11:47 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 June  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

 

Global markets were roiled by significant volatility following President Donald Trump’s tariff announcements on 2 April, also known as ‘Liberation Day’. The proposals imposed a
10% baseline tariff on all imports,  with elevated rates particularly for products  from the EU, Japan and  China, and led to fears of  a global recession. This precipitated  a
swift and pronounced sell-off in both  credit and equities. However, characterising the  unpredictability of policymaking under the new  Trump administration, a week later  the
announcement of a 90-day suspension of these tariffs catalysed a pronounced recovery which, by the end of the quarter, had seen credit spreads round-trip to completely  retrace
the post-Liberation Day widening. In  the face of potential  major trade disruption, inflationary impacts  from Trump’s tariffs failed  to materialise, and despite  pessimistic
consumer sentiment, hard data in the US remained robust. US core inflation – which excludes  the volatile food and energy sectors – held at 2.8% year-on-year in April and  May,
ticking up only slightly to 2.9% in June. In the UK, inflation remained relatively elevated, with the headline rate edging down slightly from 3.5% in the 12 months to April  to
3.4% in May, before accelerating to 3.6% in June. In the eurozone, the disinflationary trend persisted as the inflation rate fell from 2.2% going in to the quarter to 2% by its
close, just shy of the European Central Bank’s (ECB) target of 2%. Outside of the tariff headlines, geopolitical risks flared further with the Iran-Israel conflict intensifying
in mid-June. However, markets largely shrugged off conflict-related risk.

 

Manager Commentary

 

In the second quarter of the year the Company delivered a NAV total return of +1.59% compared to the +2.09% returned by the benchmark. Underperformance was driven predominantly
by negative developments in two private credits. These were unrelated and idiosyncratic in  nature and the timing of valuation adjustments is coincidental. The first credit  is
undergoing a business restructuring in response to significant (and unforeseen) changes in its target market / operating environment. The second credit has encountered a  short
term cash flow problem, which is expected to rectify over the medium term, but  which has seen the sponsor commit additional equity to the business. Both price adjustments  are
reflected in the Company’s latest published NAV.

 

During the quarter, the Company increased its market cap by c.£19m as sustained demand for share issuance continued to support Company growth. Given the attractive spread  pick
up versus corporate  bonds of  a similar credit  quality, we  continued to deploy  new cash  into the AA-rated  M&G Investment  Grade ABS fund  whilst waiting  for new  private
transactions to fund. We were also given an opportunity  to reengage more meaningfully with the public bond market  in April after the even harsher than anticipated  reciprocal
tariffs announced on ‘Liberation Day’. We focussed our attention on investment grade UK names  with little to no direct exposure to tariff risk. We added to existing  holdings,
or in some cases purchased bonds previously held, thereby being already comfortable and  familiar with the credit profile and past performance. We added to our illiquid  public
exposure in two supermarket  securitisations, Delamare (£0.8m)  and Longstone (£0.3m),  backed by Tesco  and Sainsbury’s shopping  centre leases respectively.  We also added  a
Centreparcs issue (£1m) and a Scottish Widows Tier 2 bond (£1.2m).

 

We deployed £12m across nine  new and existing private  assets, including £4m into  the M&G European Loan Fund.  We allocated £3m to  three new Regulatory Capital  transactions
backed by collateral made up of UK Project Finance and IPRE (Interest Payment Real Estate) loans, UK SME loans and large corporate US and European loans. Having been long  term
investors in these kind of securitisations (which are designed to remove risk from the  balance sheet of banks), we like the security offered by structural features typical  in
these transactions, as well as the attractive risk-return characteristics which can reward  investors for having the expertise and experience to analyse and model these  deals.
We were also pleased to close two transactions in parts  of the private market where we are often less  active due to tighter pricing. The first, an infrastructure  transaction
providing senior debt (£2.5m) in a securitisation backed by future receivables payable to the O&M (Operations & Maintenance) contractor for an Italian road PPP  (Public-Private
Partnership) project in North-East Italy. The second, a Private Placement transaction issued by a regional US school board, saw us purchase £1.5m of senior secured notes  which
are supported by future  payments relating to  wireless spectrum licenses leased  to a blue-chip  tenant. We also deployed  c.£1m into existing  private securitisations in  the
portfolio where there was either a tap of an existing issue or an opportunity to incrementally increase exposure.

 

Outlook

 

Markets have calmed since the turmoil of early April, but structural risks—like inflation, debt, and fiscal uncertainty—remain. Agreements have been reached between the US  and
key trading partners – UK, Europe, Japan, whilst negotiations with China are ongoing and  remain fundamental to the global economic outlook. Whilst we now have more clarity  on
the framework of the new bilateral patchwork system taking  shape, it has many more unknowns and is far  more complex than the old WTO-based multilateral system.  Consequently,
tariff uncertainty will continue  into the second half  of the year, although  we note that  financial markets have already  become largely immune to  the associated chaos  and
headlines. US and UK  equity markets recently reached  record highs whilst sterling  investment-grade credit spreads touched  multi-decade tights, reflecting investors’  strong
appetite for risk. It is  true that widespread fears about  an inflation surge driven by  tariffs have not yet materialised,  however it is far too  early to quantify (or  even
dismiss) the impact to global trade, which is characterised by being highly complex and interconnected in nature.

 

Whilst “tariff fatigue” is somewhat understandable given the constant suspending and extending of deadlines, current levels of market exuberance certainly feel overdone and  in
our opinion investors are being complacent in looking through the impact from tariffs. Additionally, a confluence of other risks also weigh on the outlook for the remainder  of
the year, with upward pressure  on inflation, high geopolitical  and conflict risk, rising  bond yield term premia, and  the impacts of fiscal  and broader policy dynamics  all
contributing to elevated levels of uncertainty, serving to create a challenging investment backdrop.

 

We feel it is  now more important  than ever to remain  patient and disciplined  in our investment approach  and at current  valuations we will continue  to keep the  portfolio
defensively positioned, prioritising credit quality over  reaching for yield. We will continue  to sell down tighter yielding public  credits and redeploy proceeds into  higher
yielding private investments, which can  provide enhanced risk-adjusted returns and  diversification benefits. We also  remain poised to invest in  public new issues or  credit
specific opportunities should  valuations prove attractive  to us. Should  further market volatility  give rise to  attractive opportunities, we  have access to  a £25m  credit
facility and a further £33m invested in two AAA/AA-rated, daily dealing ABS funds, ready to be reallocated.

 

 

MUFG Corporate Governance Limited

Company Secretary

 

1 August 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.

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Dissemination of a Regulatory Announcement, transmitted by EQS Group.
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.:  397749
   EQS News ID:   2178460


    
   End of Announcement EQS News Service

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