Protecting Capital.
Powering Wealth.

The Fund delivered +0.74% in July, 9.37% over 12 months and 9.31% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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Capital In, Spreads In

Spreads in the public ABS market have now retraced much of the widening seen through late 2023, reflecting what is, by some measures, at or near record levels of capital inflows into the sector in history. The volume of money seeking deployment has supported strong issuance, but it has also eroded some of the spread premium that should accompany private transactions. In this environment, protecting that premium, rather than diluting it for the sake of volume is key to sustaining the Fund’s risk-adjusted return profile.

For managers willing to extend risk or compromise on structure, there is no shortage of transactions to deploy into. Our focus remains on maintaining the premium available in well-structured private transactions over comparable public issuance, even if that means exercising patience where pricing no longer compensates adequately for risk.

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Balancing Selectivity with Deployment

Selectivity has become a common talking point across the sector, but genuine selectivity is not simply about declining transactions, it is about maintaining a consistent risk/return target and only deploying where those criteria are met. While temporary elevated cash holdings can be a natural feature of this asset class – particularly in preparation for large, well-structured transactions – extended periods of high cash may also indicate a lack of deal flow or an unwillingness to participate at prevailing market levels. With a track record approaching a decade, a strong reputation in the market, and deep relationships built across both strategies, we benefit from a consistently broad and diverse pipeline of opportunities each week. This allows us to remain fully engaged in the market, continually assessing opportunities, and deploying into transactions that offer quality counterparties and structural protections commensurate with the Fund’s return target.

In assessing opportunities, we believe it is important for investors to consider not just the return level offered, but the mechanics of how that return is generated and maintained over time. With the RBA cash rate having moved lower in recent months, funds offering a fixed absolute return now face a materially different environment. As benchmark rates fall, sustaining a higher fixed rate of return without a margin to a floating benchmark such as BBSW becomes progressively harder without either extending duration, increasing credit risk, or compromising on structure. Understanding this interaction between market rates, funding costs, and credit risk is central to managing credit portfolios through rate cycles and preserving risk-adjusted returns.

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Consistent Outcomes Through a Disciplined Process

The Fund’s track record continues to reflect a disciplined investment process rather than market timing or opportunistic positioning. Over nearly 10 years, we have navigated shifting economic conditions, liquidity shocks, and changes in market structure without departing from our core mandate. That consistency remains our competitive advantage in an increasingly crowded market.

The Fund delivered +0.70% in June, 9.40% over 12 months and 9.30% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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Staying Disciplined in a Distracted Market

Despite persistently elevated global interest rates, geopolitical instability and signs of broader economic fatigue, listed equity markets continue to post gains, driven more by momentum than fundamentals. In that context, many investors are asking not only what to own, but why.

We remain of the view that the best defense against uncertainty is not a market view but a clear and repeatable investment process. Our approach does not seek to predict economic turning points or short-term price movements. Instead, we focus on identifying assets that can withstand a wide range of market and economic scenarios, including those less favourable than today.

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Credit’s Role in a Portfolio

For many investors, credit provides a stable, income generating foundation to portfolios otherwise exposed to asset price volatility. In that context, the role of credit is not to shoot the lights out but to deliver capital stability and a high level of income. In our view, the best credit strategies are defined by their downside management. This means investing in assets where the return of capital is highly likely, where the underlying security can be relied upon in an enforcement scenario, and where asset selection is supported by detailed loan-level analytics, not assumptions or extrapolated modelling.

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Holding the Line on Credit Standards

Importantly, while yields across the market may look similar, the risk beneath them can vary significantly. We continue to observe exposures to thinly capitalised lenders, subordinated debt, or structurally weaker loan books - risk factors that may not be readily apparent without deep credit expertise. While some managers provide extensive data, the challenge lies in interpretation. In credit, transparency alone is not enough: understanding how risk is originated, structured and priced requires both access and experience. Headline terms like “first ranking security” or “look through LVR” can describe very different risk profiles depending on what sits beneath them.

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Discipline is the Differentiator

Our investment team continues to take a cautious and methodical approach to deployment. That includes full visibility into the performance of every underlying loan pool and the application of a rigorous credit and structuring lens before any capital is deployed. Where a transaction or counterparty does not meet our standards, it doesn’t progress.

The result is a portfolio that is more conservatively positioned than many of our peers, but also more resilient. Our 9+ year track record reflects that consistency. Through a period that has included COVID lockdowns, liquidity shocks, aggressive central bank tightening, and sharp repricing of risk across asset classes, the Fund has continued to deliver monthly income with capital stability. We do not rely on mark-to-market gains, asset revaluations or directional market calls to support return. The outcome for investors has been one of steady income and reliable preservation of capital.

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#1 Fixed Interest Fund in Australia FY25

We were pleased to see the Fund recognised by Livewire Markets as the top-performing fixed interest fund in Australia for FY25. While league tables will always fluctuate, this acknowledgement is consistent with our long-term focus on doing the fundamentals well and doing them consistently. That consistency is grounded in discipline - in how we assess risk, structure transactions, and allocate capital.

The Fund delivered +0.67% in May, 9.47% over 12 months and 9.24% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

Comparisons in Credit

Credit continues to attract significant investor interest, and with that comes a growing number of new funds and strategies seeking capital. Many of these advertise high yields and strong return profiles, often with terminology that suggests robust downside protection — such as “first ranking security,” “look-through LVRs,” or “first loss capital.” While these features can form part of a sound structure, they are not guarantees of quality in and of themselves. The technical detail matters — and so does the experience of the team assessing it. In credit, headline terms often obscure material differences in underlying risk. Without full access to the loan level data, transaction documentation, and enforcement mechanisms, it is exceptionally difficult to compare funds on a like-for-like basis. The same language can describe entirely different risk profiles.

Risk and Return

The Manning Monthly Income Fund has now delivered consistent monthly income for nearly a decade — with no negative monthly returns from credit losses. That track record reflects a clear and consistent investment philosophy: preserve capital first and pursue yield only where it is backed by robust asset-backed security and structural protections. We continue to see peers seek higher yields by moving up the risk curve — including concentrated exposures to subordinated debt, thinly capitalised counterparties, or more cyclical lending strategies. While these approaches may produce appealing near term returns, they can expose investors to elevated downside risk, particularly in a tightening economic environment. Our approach remains grounded in delivering resilient, repeatable returns, backed by institutional quality credit work, full transparency into the underlying assets, strong governance over every transaction and deliberate avoidance of complexity that can obscure risk.

Cash Drag and Deployment Timing

This month’s return of 0.67% was modestly softer than recent periods. This reflects a higher than usual average cash holding of approximately 13% during the month, as the Fund positioned for the expected settlement of several large transactions and lender drawdowns.

Such temporary cash balances are an inherent and prudent feature of this asset class. Unlike listed markets, deployment timelines are not always linear — and we will never compromise on asset quality or structure to maintain short term consistency.  We expect this capital to be fully deployed across June.

As credit continues to evolve as an asset class, we believe the importance of experience, structure, and transparency will only increase. The Fund remains highly selective in its deployment and operates in a segment of the market where capacity is inherently limited by the quality and scale of opportunities that meet our criteria, as such, we remain disciplined about how and where we deploy capital.

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Josh Manning, Portfolio Manager and Founder presents the Q1 2025 market update for Manning Asset Management.

The Fund delivered +0.78% in April, 9.61% over 12 months and 9.19% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

In recent weeks, we have seen Australian credit spreads, being the expected return on a specific credit-rated note, fluctuate and largely move wider, reducing the value of those assets. For those funds that have benefitted over the prior years from credit spreads moving lower, inflating the value of their underlying assets, this has seen lower returns of late versus previous periods, adding a degree of volatility to a historically low volatility holding in one’s portfolio.

Short Duration Assets

The Manning Monthly Income Fund targets so called short duration assets that have a shorter investment period. These assets enable us to more actively manage the portfolio according to our macroeconomic views while being less impacted by changes in credit spreads due to the shorter timeframe of repayments that must be adjusted. As we have seen considerably more relative value in private vs public markets, the Fund's return has been derived by investing in higher-yielding assets that have adequate structural credit supports rather than being reliant upon lower credit spreads to drive returns higher.

Impact from Widening Credit Spreads

In April, the Fund delivered 0.78%, with credit spreads moving wider, slightly reducing the return by approximately 0.03% (i.e. without changes in market conditions, the return would have been 0.81%). While macroeconomic factors naturally influence the valuation of the Fund’s holdings, their impact remains modest, reinforcing the strength of the investment approach. The Fund’s focus on short-duration, floating-rate, higher-yielding private assets with structural credit support continues to demonstrate resilience and stability in varying market conditions.

The Fund delivered +0.81% in March, 9.69% over 12 months and 9.09% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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Throughout the history of the Fund (near 10-year track record), we have witnessed several global events that have caused financial markets, particularly equities, to experience significant sell-offs. A common theme in such sell-offs is not the known impact of the event, but rather the anticipation of it. In this instance, equity markets have reacted to the potential inflation, geopolitical, and social impacts of the tariffs, which are still largely to play out. While this reaction is commonplace for equities, credit involves a very different discipline, and our approach to such global developments is outlined below.

Our Investment Approach

As a specialist credit investor, our focus is not on potential buying opportunities or long-term projections of what might happen. Instead, we concentrate on near-term confidence around what is likely to happen and what that means for the adequacy of our downside structural protections. Our ultimate focus is on capital preservation, ensuring that our investments are well-protected and positioned for stability.

When financing pools of underlying loans that make up the Fund’s holdings, we negotiate structural protections with the lenders we fund across various areas. These protections can include arrears rates or levels of defaulting loans within a pool that exceed a predetermined threshold. Should these thresholds be breached, enhanced rights in the transaction documents are triggered. These rights can include requiring the lender to repurchase the loans from the pool, closing and running down the facility, or even allowing Manning to sell the underlying pool of loans to recover capital. Such protections are negotiated well in advance, and the skill lies in adequately considering the necessary protections, their levels, and being committed to exercising them when needed.

As economic conditions change and new economic information becomes available, we constantly assess the Fund’s holdings against its objective of delivering a strong and consistent income-based return through the economic cycle. Unlike equity markets, which reward those who can accurately predict the future, we focus and invest on a short and medium-term basis, ensuring our investments are well-protected and positioned for near-term confidence.

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Portfolio Composition

Long-term readers will note that over the past few years, we have been shifting the portfolio towards loans secured by hard assets. Today, the portfolio is predominantly composed of loans secured by first-ranking mortgages and business loans with first-ranking charges over business-critical assets such as vehicles. We believe the profile of such assets is more resilient, liquid, and better suited to a less buoyant market than we have experienced in the post-COVID period. This strategic shift further aligns with our focus on capital preservation.

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Market Impact and Fund Resilience

The global pullback in certain markets has impacted many investors. However, it demonstrates the importance of a highly diversified portfolio and specifically how the Manning Monthly Income Fund can cushion investors against broader market volatility while delivering a strong and consistent income stream to clients. The Fund now has a near 10-year track record and has never had a negative monthly loss from credit returns.

Key Focus Areas

Amidst the noise in the market and significant movements in major indices, we remain focused on what truly matters to us as Credit investors. We maintain a sharp focus on critical economic indicators such as employment levels, household balance sheets, and Australia's unique buffers against global macroeconomic events, including our floating rate currency, Federal government debt to GDP ratios, and monetary policy responses. Crucially, we concentrate on key segments of the Australian credit markets that have consistently demonstrated resilience across various market conditions. At the same time, we strategically avoid sectors that present heightened risks, such as unsecured corporate lending, project finance (including construction finance), and other illiquid forms of credit like agricultural lending.

Our approach integrates a forward-looking economic assessment with deep domain expertise in areas with proven long-term track records, creating a robust strategy to navigate increased market uncertainty. This powerful combination ensures we are well-prepared to adapt to evolving economic landscapes. By maintaining this disciplined approach, we aim to ensure the Fund's resilience and deliver strong, consistent returns. Our ultimate focus on capital preservation remains at the forefront of our strategy, guiding our decisions and protecting our investors' interests.

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