The M&G Credit Income Investment Trust’s floating rate income stream makes the trust a superior choice for the higher interest rate environment.
The Bank of England is set to hold rates at elevated levels for the foreseeable future, supporting allocation into the M&G Credit Income Investment Trust because higher interest rates translate directly to higher dividend payouts.
The trust targets the distribution of quarterly payouts at a rate of SONIA +4% and has a yield of 9.1% based on the past four declared dividends.
SONIA (Sterling Overnight Index Average) is the benchmark of actual interest rates banks pay to lend to each other overnight.
SONIA has tracked the BoE base rate higher over the past two years and steadily increased M&G Credit Income’s quarterly dividend distributions.
Even though the Bank of England may be forced to cut rates early next year if the economic environment worsens, UK interest rates are not going back to anywhere near the lows of the last decade, and the trust is set to provide attractive yields in years to come.
With the support of 200+ fixed income and debt specialists at M&G, Manager Adam English overseas a £130m portfolio of debt assets from commercial mortgage loans to investment grade asset backed securities.
M&G Credit Income invests in both public and private assets of investment grade. It does not invest in higher-risk inferior debt typically associated with the high yield area of the bond market.
The assets held within the portfolio are difficult for individual investors to access and the trust provides a great opportunity to diversify into assets with steady, reliable distributions.
Examples of assets held in the portfolio include a tranche of UK Student debt issued by the government and high quality banking bonds. The trust recently picked up an issuance by Virgin Money and has exposure to sectors ranging from restaurants to property.
The trust employs a nimble approach to asset allocation and has harnessed pricing disconnects this year to add to the portfolio.
For example, during the mini-banking crisis in March, M&G Credit Income bought up tranches of high quality banking credit as prices plunged.
That said, the trust has a low turnover and pursues a diverse range of high conviction holdings, which are held for many years.
The M&G Credit Income Investment Trust should be considered by all serious income investors.