M&G Credit Income Investment Trust announced its annual results for the year ended 31 December 2022. NAV fell 1.7% for the year, falling short of the 5.5% benchmark return. While management acknowledged the disappointing result, they did note that it was the first year of underperformance since the IPO in 2018.
The annual report noted:
“The underperformance of the NAV came principally from a widening of credit spreads rather than the well-publicised, and significant, rises in interest rates which occurred over the year. The portfolio was substantially protected from those rate rises by the use of interest rate hedges: these are an integral part of the company’s investment strategy and were the main driver for our significant outperformance of comparably rated public indices such as the ICE BofA BBB Sterling and Collateralised Index (down by 18.87%); ICE BofA 1-3 Year BBB Sterling Corporate & Collateralized Index (down by 6.84%); and the ICE BofA European Currency Non-Financial High Yield 2% Constrained Index (down by 11.59%).”
Regarding the outlook, chairman David Simpson added:
“As at 31 December 2022, the portfolio had a yield to maturity of 8.17%, thereby providing a good foundation for your Company’s investment objective. The capital value of the portfolio reflected credit spreads significantly above the levels typical in public investment grade debt markets. As these spreads normalise the Company’s NAV can be expected to rise again.
“Your Company’s portfolio (including irrevocable commitments) is now 60% invested in private (not listed) assets, with an additional investment of some 10% in illiquid publicly listed assets which are intended to be held to maturity. While our Investment Manager expects to continue to grow the private asset portion of the portfolio in line with the Company’s longer term strategy, it currently sees opportunity to add public bonds into the portfolio at yields that are attractive, relative to the target return of the Company. The Company’s £25 million revolving credit facility provides valuable flexibility to enable our Investment Manager to take advantage of the volatility and enhanced returns currently available in the public bond market.
“The technical backdrop in fixed income markets is much stronger now; all-in bond yields compare favourably to other asset classes, thus attracting capital back into the market. Your Investment Manager believes there is now attractive value to be found in credit, with investors being well paid to take risk. Unlike during the early part of 2022, when risks were not appropriately priced in and the compensation investors were receiving was extremely low, today’s investment grade credit investors are in a much better position. The elevated yield provides a good cushion with which to navigate volatile markets although selectivity and fundamental credit analysis will remain key to the way in which the Investment Manager shapes the portfolio in the year ahead.”
MGCI : Down year but returns still solid for M&G Credit Income