The M&G Credit Income Investment Trust seeks to generate high-quality, reliable income from a diversified credit portfolio, while seeking to preserve investors’ capital through low net asset value (NAV) volatility.
The trust has the flexibility to invest in both public and private debt, which allows individual investors to access potential opportunities normally only available to large institutions.
By investing in these specialised areas of fixed income, we can construct an investment grade-quality portfolio with the potential to produce superior income to traditional bond portfolios without compromising on credit quality. This is thanks to our position as one of Europe’s largest private debt fundraisers and our decades of experience in these markets, which enable us to source deals unavailable to other asset managers.
Through the trust’s closed-ended structure, we can benefit from holding these private assets to their maturity, while investors retain access to their capital via the trust’s publicly listed shares.
Watch this short video to learn more about the M&G Credit Income Investment Trust.
which move in line with interest rates and help to protect against inflation
sourced primarily from private credit, with 70%+ of the portfolio invested in investment grade-quality assets
of private assets, which are typically held to maturity, compared to other investments that can offer similar income, such as equities and high yield bonds
than traditional bond portfolios thanks to private credit opportunities sourced through M&G’s market-leading position
allows investors to buy and sell the trust’s shares to suit their circumstances without affecting the underlying portfolio
designed to enable investors to buy and sell shares at close to Net Asset Value (NAV)
|Company name||M&G Credit Income Investment Trust plc|
|Listing||Premium segment of the Official List and Main Market of the London Stock Exchange (Ticker MGCI.LN)|
|Investment objective||Aims to generate a regular and attractive level of income with low asset value volatility|
|Investment policy||Investing in a diversified portfolio of public and private debt and debt-like instruments|
|Geography||The Company will be invested primarily in sterling-denominated assets|
|4.0% pa + Sterling Overnight Index Average (SONIA)|
|Dividend policy||Paid quarterly|
|Gearing policy||Used for tactical investment purposes and liquidity management (limit of 30% NAV [net asset value], typically not expected to exceed 20% NAV)|
|Discount control||Liquidity window every five years and standard share buy-back authority (≤14.99% annually)|
|Board||Chairman and three other non-executive directors|
|Management fee||0.7% pa of the prevailing NAV|
Please find below the monthly performance for the M&G Credit Income Investment Trust since inception.
|NAV total return (%, pa)**||1 month||3 months||6 months||YTD||1 year||2 years||3 years||Since
|M&G Credit Income
Investment Trust (MGCI)
|Calendar year NAV total
return (%, pa)**
|M&G Credit Income
Investment Trust (MGCI)
Past performance is not a guide to future performance
Source: M&G, 30 June 2022. * 3 Month Libor +2.5% from inception to 31/12/2019, 3 Month Libor + 4% from 1st January 2020 to December 2021, thereafter SONIA + 4%. **The total return calculation assumes that dividends paid to shareholders are reinvested at NAV at the time the shares are quoted ex-dividend. ***Trust inception 14 November 2018.
Adam English, Fund Manager
Adam joined M&G Investments in 1999 and is a fund manager for Prudential’s Life and Annuity Funds and the M&G Credit Income Investment Trust. Adam manages investment grade and high yield portfolios across both public and private markets.
Before joining M&G, Adam worked for the United Bank of Kuwait. Whilst there, he worked within the credit and high yield departments, with representation on the bank’s Credit Committee. Prior to this, he worked for Price Waterhouse, gaining membership of the Institute of Chartered Accountants in England and Wales.
Adam graduated from Christ Church College, Oxford University with a degree in Physics and is a CFA charter-holder.
Click on each box below to learn more about potential alternative credit opportunities
ABS are bonds backed by an underlying pool of assets, such as mortgages, auto loans or credit card loans. Investors receive regular, variable interest payments generated from these borrowings. ABS bonds mature over short-to-medium time horizons.
Interest payments are prioritised through a process called ‘securitisation’, where bonds are placed into ‘tranches’ (slices) according to their prospective risks. Investors can choose to be first in line to receive interest payments by investing in senior tranches, which offer lower potential returns. Investors in junior tranches are placed at the back of the queue to receive payments and therefore demand higher compensation, but also face greater risks of not receiving the expected full amount, as they must absorb potential losses before other investors.
The trust may invest in mezzanine tranches, which sit between the most senior and junior tranches. This can provide higher potential income than the senior bonds alongside higher protection than junior tranches.
European ABS can offer a substantial income premium over conventional government or corporate bonds that carry the same level of credit risk. One reason is the lack of standardisation among transactions, which are often backed by a large number of underlying loans and require extensive resources to analyse. M&G has developed sophisticated proprietary research tools to help gain a demonstrable edge in evaluating deals and modelling potential future scenarios. We are often approached before deals have come to market.
Historical defaults on senior European ABS are very low over multi-decade periods, including during the 2007-09 global financial crisis and COVID-19 pandemic. This is partly due to the typically robust underwriting and credit processes in place across Europe, particularly compared to the US.
We are also finding an increased number of potential opportunities in Asia Pacific – for example, we recently invested in ABS backed by personal loans originated from a new technology platform in New Zealand with a strong reputation for responsible lending. These loans are typically used for home improvements or debt consolidation.
Real estate debt (or ‘commercial mortgage loans’) consists of loans made to commercial property owners to finance the purchase or redevelopment of real estate. This real estate may comprise offices, hotels or retail properties, which the borrower rents out to tenants.
Loans are secured against the physical real estate, which provides lenders with a claim to ownership of the property if the borrower faces challenges in meeting its obligations. The property can be ringfenced and therefore legally separated from the borrower’s other assets and liabilities.
The terms of the loan will also stipulate certain ongoing conditions, such as a minimum current property value relative to the size of the loan (‘loan to value’, or ‘LTV’), and expected rental income relative to the loan’s interest payments (‘interest coverage ratios’). The borrower’s own creditworthiness is also assessed.
Repayments are subject to variable (‘floating’) interest rates and the loan term is usually three to five years.
M&G is one of the world’s largest investors in real estate, with around £31 billion of property assets under management. Real estate debt therefore represents an opportunity to combine the knowledge and resources derived from our leading positions in both fixed income and real estate markets.
When we invest in real estate debt, we normally negotiate with each individual borrower to create bespoke payment terms they are comfortable with while providing additional security for our investors.
In conducting due diligence, we will, for example, evaluate the lease terms agreed with each of the property’s tenants and assess factors such as tenancy exit and entry dates; rent reviews; potential void periods; and ongoing demand for floor space in comparable properties.
Leveraged loans are normally used to finance mergers and acquisitions of privately owned businesses (companies not listed on public stock exchanges). Loan terms are negotiated individually between the borrower and lender. Usually, the process is led by a bank, which may fund the loan with capital provided by a group of investors.
Leveraged loans are normally rated below investment grade and therefore require extensive prior due diligence and ongoing analysis, which at M&G is performed by specialist in-house credit researchers. We take a highly selective approach to these transactions and invest in only a small proportion of the deals we evaluate.
The trust invests both directly in leveraged loans and via a holding in the M&G European Loan Fund, which is only available to professional investors and institutions.
Investors are being increasingly drawn to leveraged loans due to their typically higher levels of potential income than high yield bonds; their relatively short maturities and variable interest rates, which can protect against interest rate rises; and, in many cases, additional levels of safety provided by senior secured loans.
The ongoing recovery of the global economy is likely to encourage future corporate mergers and acquisitions, which we expect to increase the number of potentially attractive opportunities.
Over the past decade, financial regulators have required banks to improve their balance sheets by holding a significantly higher proportion of their total assets as cash or highly rated debt.
This can present potential issues to banks when holding loans or other lower-rated types of debt on their balance sheets.
Significant risk transfer (SRT) transactions are a way for banks to free up capital on their balance sheets by selling the first-loss risk of this debt to investors. This is done via a process that shares many similarities with ‘securitisation’ (see also: asset-backed securities). SRT transactions are relatively niche, but the market is likely to grow.
Reducing banks’ balance sheet risk is a long-term trend that will intensify in the coming years. Basel IV legislation, for example, which is due to be implemented in January 2023, will further increase capital requirements for European banks.
M&G is one of a small number of dedicated investors in European significant risk transfers. The highly specialised knowledge, regulatory landscape and minimum investment size required for these transactions represent a significant barrier to entry for many other asset managers.
By investing in significant risk transfers, investors can access income from types of debt that were previously only available to banks, such as loans to corporations and small-to-medium enterprises (SMEs) and revolving credit facilities, which are an alternative to account overdrafts. This increases portfolio diversification and potentially offers much higher levels of income than other types of high yield debt; however, investors may be exposed to the riskiest parts of a bank’s loan book, which means that collateral defaults can reduce potential returns.
When a company borrows money, its outstanding debts are ordered in terms of priority for repayment should the firm ever struggle to meet its financial obligations. Creditors that hold senior debt are first in line to receive any money owed, but they typically receive lower interest rate payments than other lenders. Holders of junior debt face higher risks of not recovering all of the money they are owed, but in return they can demand higher interest rates on the money lent.
The trust invests in a combination of senior and junior debt depending on prevailing risks and potential returns available in the market, while seeking to maintain an overall investment grade credit rating for the portfolio.
The trust’s ability to invest in alternative forms of credit means that it can access senior debt that pays a significant premium over conventional investment grade corporate bonds. Many of these potential opportunities currently exist in the asset-backed securities, commercial mortgage loans and leveraged loans markets.
At times, markets can also present potential opportunities to invest in investment grade senior bonds at higher interest rates. In such instances, the trust may invest a greater proportion of the portfolio in these bonds due to their potentially more attractive income for comparatively lower risk.
The trust also holds a small amount of junior debt, which is designed to boost overall portfolio returns. When the outlook for default rates is low, as is the case in the current market environment, the potential benefits of owning these assets – particularly those with short-to-medium maturities – can outweigh the risks.
Some types of debt can be ‘secured’ against collateral, such as an individual property or a pool of loans. This provides the lender with a claim to ownership of those assets should the borrower face the risk of failing to repay some or all of its debts. Secured debt can therefore offer extra layers of protection for investors.
Unsecured debt can still carry a high credit rating, which is based on the perceived creditworthiness of the issuer. Many conventional government and corporate bonds, for example, are unsecured.
The trust can invest in both secured and unsecured types of debt, with each potential opportunity carefully analysed on an individual basis.
The trust normally holds a significant proportion of the overall investment portfolio in secured debt, either directly or indirectly. This includes asset-backed securities, such as UK residential mortgage-backed securities and auto loans; European commercial mortgage loans; and European leveraged loans.
This provides the portfolio’s assets with additional layers of protection if market conditions deteriorate. A large portion of the portfolio’s leveraged loans, for example, are senior secured. These loans typically pay higher interest rates than conventional high yield bonds, while also ringfencing some of the companies’ assets in the event that their financial situation changes. Similarly, the portfolio’s commercial mortgage loans are primarily senior and secured against physical real estate.
Given the ultra-low interest rates available on conventional government and corporate bonds, secured debt is a potential way to increase income while providing these additional levels of security.
We are one of Europe’s leading fixed income investors, across fixed income assets globally.
M&G is one of the UK’s largest fixed income and private debt investors, giving us access to potential opportunities unavailable other asset managers
We have developed a rigorous and selective investment process based on more than two decades’ experience in private debt markets
M&G has built one of Europe's largest in-house credit research teams, which provides us with the extensive resources required to identify and analyse potential deals
Regulatory Disclosures* M&G Credit Income Investment Trust
Risks associated with the Company
Please note this is not an exhaustive list, please refer to the risk section in the Prospectus for further details
*As required by Markets in Financial Instrument Directive II.