M&G Credit Income Investment Trust is investing largely in investment grade bonds, with 70 per cent of its assets being made up of these. The majority of these will be sterling denominated.
However, it is also engaged in investing in alternative asset classes such as private credit, which has historically not been correlated within an arrangement of this type.
The investment objective suggests the trust is aiming to pick up private sector company debt instruments. Typically this means that the portfolio has an objective to achieve returns while minimising exposure to volatility. This is an interesting objective given that the sheer nature of the instruments it is investing in can be illiquid.
The closed-ended nature of the trust should allow M&G to focus on generating long-term returns without the need to undertake forced liquidations within the trust to meet investor redemption demands.
This will likely prove particularly beneficial during stressed market conditions, something very important as the trust invests in illiquid instruments that can be difficult to redeem at short notice.
The fact it is an investment trust structure rather than an open-ended investment company/unit trust means that it can gear, or borrow, to leverage positions, which can magnify losses but conversely enhance returns. The income trust has the backing of M&G, a well-established and reputable investment house. The lead manager is a well-known bond and fixed income manager.
Investors may also be inclined to hold back on investing until there has been some established performance or track record. The target London interbank offered rate plus 4 per cent coupon is attractive and could be in a portfolio designed to create natural income.
Ben Sassoon is a financial planner at Drewberry Insurance
