Investment Trust Insider on M&G Credit Income

Investment Trust Insider on Perpetual Income and Growth

Investment Trust Insider on M&G Credit Income – James Carthew: M&G hopes lower bond target will still appeal after loan wobble

It was not only equity markets that struggled at the end of last year, many debt funds had a torrid time. One of the worst affected has been Marble Point Loan Financing (MPLF). It said December was the worst month for loans in seven years, with a 2.3% drop in the Credit Suisse Leveraged Loans index and an 8.5% slide in its own net asset value (NAV).

MPLF’s managers think part of the reason for this was a significant ($15 billion) outflow of money from retail loan funds owned by private investors in December. I have warned in the past about the dangers of holding illiquid assets in open-ended structures and this is a prime example. The mutual funds and ETFs investing in this area offer daily or real-time dealing but the assets they invest in trade in markets that take a week or more to settle.

MPLF says investors have returned to the market in January and prices are rising again but, next time, we could get caught in a downward spiral of redemptions driving falling prices, driving further redemptions.

MPLF invests in structured credit – collateralised loan obligations (CLOs) – where exposure to a portfolio of loans is sold off in tranches. The top-most tranche, the one that gets paid out first when it comes to dividends or in the event of a liquidation, is the least risky and gets paid the lowest yield. The bottom tranche, often called the equity tranche, gets…

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