Protecting Capital.
Powering Wealth.

The Fund delivered +0.68% in February (noting the 28 day month, this is equivalent to 0.75% for a 31 day month), 9.61% over 12 months and 8.95% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.

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Examining Australian Credit Markets

A rise in recent volatility has disrupted the longer-term theme of decreasing credit spreads, which historically has seen longer-term-to-maturity assets outperform short-dated equivalents, a trend we see likely reversing. Our investment thesis centres on buying short-dated assets, meaning a rise in volatility is welcomed. Increased volatility has the potential to increase the yield we can demand on a given security, while our existing portfolio value is only marginally impacted by these new yields. Opposingly, a fund buying longer dated assets will have less ability to ‘reset’ their portfolio into higher-yielding assets since capital isn't paid back as quickly and their current portfolio falling in value given the mark to market exposure.

At a time when equities have generally fallen in value, longer-dated assets have offered limited portfolio diversification. While it is too early to postulate if this rise in volatility is a point-in-time dynamic or if we are entering a new market dynamic, we anticipate a more material divergence in our Fund's performance vs peers that, in general, are more exposed to longer-dated assets.

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New Investor Reporting

Following a 12-month process, we are pleased to release our enhanced investor reporting disclosure, as seen below, including a large portion of the portfolio being credit rated by an independent third party. We are pleased to provide this at a time when investor disclosure is paramount using industry best practice standards.

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Portfolio Composition**

Credit Quality**

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Portfolio Composition:

• Private ABS: refers to assets directly negotiated and held by the fund. The indicative credit rating shown is based on ratings data provided by an independent third party.
• Public ABS: refers to publicly rated securities issued on the market and purchased by the fund. The credit rating shown is based on the public rating provided by S&P or Moody’s.
• Rating in progress: these are Private ABS securities with an indicative credit rating in progress with a target release date of July 2025.
• Direct: individual, senior first mortgages held by the Fund

The portfolio composition chart will be updated monthly with the credit quality and corresponding chart being reassessed quarterly using updated data. We look forward to a growing prevalence of funds disclosing portfolio holdings within the industry and are proud to play our role in that evolution.

The Psychological Impact of FAB on Investing

Investing isn't just about numbers and market trends; it's also heavily influenced by our own psychology. One fascinating psychological quirk that plays a big role in how we invest is the Fading Affect Bias (FAB). This bias means that the negative emotions from past events fade faster than the positive ones. This mechanism plays an important role in helping us move on from previous pain and can explain why we often look back on stressful periods of our life and recall the silver linings of such events rather than the painful experiences that defined them. When it comes to investing, this psychological bias can lead to an underappreciation of risk and dissatisfaction with more stable investments.

We've all been there—taking a hit from risky investments like stocks, cryptocurrencies, or speculative ventures. The initial pain from these losses is sharp, making us cautious and pushing us towards safer bets. But thanks to the Fading Affect Bias, the sting of those losses fades over time. We start to forget just how bad it was and get lured back by the promise of high returns from risky assets. This cycle can be dangerous. Each time we dive back into high-risk investments, we open ourselves up to potentially big losses. Even though history shows us the risks, the fading of those negative emotions makes the past seem less scary, encouraging us to take those risks again.

A Trip Down Memory Lane: Construction Finance and the GFC

As an asset class, construction finance is often where we see investors forget past pains. In our April 2024 article, 'The Risk Premium of Construction Finance,' we highlighted that following the GFC, an Australian ADI faced impairments in 53.9% of their $2bn+ Construction and Development Loan Advances book. When evaluating investments, it's crucial to remember that not all ~10% returns are created equal; we need to look beyond the headline return to truly understand the risk involved.

The Appeal of Stable Investments

On the flip side, stable investments like bonds, savings accounts, or funds that target capital stability, like the Manning Monthly Income Fund, offer attractive but steady returns without the excitement of higher risk options. These are designed to protect capital and provide consistent income over the long haul. But in a market where high returns from risky assets are often in the spotlight, these stable returns can seem a bit dull. Investors might grumble about the lower returns from these safer investments, forgetting that their main job is to preserve capital and provide a stable source of income. The Fading Affect Bias makes this dissatisfaction worse, as the emotional memory of past losses fades, making the modest returns of stable investments seem less attractive.

Given the psychological traps of the Fading Affect Bias, it's crucial to see the value in investments that target capital stability. These investments offer a balanced approach, mixing growth and defensive assets to provide stability and growth. They're especially good for investors with low to medium risk tolerance and a medium to long-term investment horizon. Capital stable investments can help smooth out the emotional ups and downs that come with high-risk assets. By providing consistent returns and protecting against big losses, they offer a solid foundation for a diversified investment portfolio. This stability is particularly important during market downturns, where preserving capital is key.

Understanding the Fading Affect Bias and its impact on our investment decisions is essential for long-term financial success. While the lure of high returns from risky assets can be tempting, it's important to remember the lessons from past losses and the value of stable investments. Capital stable investments, with their balanced approach, offer a smart path to achieving financial goals while minimising emotional and financial stress. By recognising and addressing the influence of psychological biases, we can make more informed and rational decisions, leading to a more secure financial future.

The Fund delivered +0.75% in January, 9.64% over 12 months and 8.85% annualised over three years. Over the past nine years, the Manning Monthly Income Fund has consistently delivered returns of the RBA cash rate plus 5 to 5.50% net of fees. This track record reflects our unwavering commitment to long-term stability, capital protection, and prudent risk management.

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Market Outlook

In today's market, characterised by compressed credit spreads, many fixed income funds have shown strong one-year returns due to mark-to-market gains. However, these short-term boosts often come at the cost of a reduced yield to maturity, which is the expected return if those assets are held to maturity. This disparity highlights the importance of evaluating investments. In a market with abundant choice and many differing strategies, it is important for investors to assess managers and compare returns on a 5-year basis to reduce the mark-to-market impact or juxtapose each fund’s yield to maturity. The Manning Monthly Income Fund pre fees and expenses Yield to Maturity at time of writing was circa 10.70%.

The Manning Monthly Income Fund prioritises consistency and market-leading risk-adjusted returns. Our strategy is specifically designed to navigate market fluctuations, ensuring long-term growth and a high level of consistent income without sacrificing stability. We were pleased to be recognised for another year running in Livewire Market’s list of top-performing Fixed Income funds for 2024. With the longest track record among top performers, we know that enduring success is built on medium and long-term results, not just one-year returns. This disciplined investment strategy sets us apart, we look forward to another year of delivering market leading risk-adjusted returns for our clients.

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As we close the chapter on 2024 and prepare for the challenges and opportunities of 2025, we find ourselves in a landscape shaped by significant developments, opportunities, and challenges in the Australian credit market. Our focus remains steadfast on the critical factors that influence our investment strategy and portfolio management.

The persistently elevated RBA cash rate remains a central concern, directly impacting the health of household balance sheets. While these elevated rates introduce certain headwinds, they simultaneously offer opportunities for savers and investors seeking superior yields. The geopolitical landscape, marked by trade tensions, continues to demand our attention due to its potential to exert inflationary pressures and disrupt global supply chains. In parallel, while business trading conditions present challenges within specific sectors, there is cautious optimism due to encouraging signals from forward-looking economic indicators.

Throughout 2024, we have meticulously maintained the integrity and resilience of our portfolio. Key risk metrics within the Fund's holdings, such as arrears remain at sound levels, comfortably within the covenants designed to safeguard our capital across all transactions. We are also pleased to report that all our positions are performing robustly, reflecting our rigorous transaction analysis and high credit standards.

Despite the uncertainties that the market presents, our fund is well-prepared to adapt and thrive. We have strategically diversified our portfolio to minimise risks and seize emerging opportunities. Our investment approach is inherently flexible and adaptive, enabling us to respond effectively to market changes. We anticipate that a well-structured, diversified, and actively managed portfolio of fixed income assets will continue to outperform more volatile asset classes.

As we transition into the new year, our commitment to capital preservation and delivering consistent income to our investors remains unwavering. We are optimistic about our ability to navigate the evolving economic landscape and are excited about the opportunities that 2025 holds.

We are thrilled to unveil our refreshed branding that brings our vision and philosophy to life.

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Manning Asset Management Pty Ltd (ACN 608 352 576, AFSL 509561). This video contains general information for wholesale clients and has not been prepared having regard to your investment objectives, financial situation or specific needs.

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Market Outlook

As we approach the end of 2024, we reflect on a year marked by significant developments and evolving dynamics in the Australian credit market. This year has underscored the importance of our disciplined investment approach and our commitment to capital preservation. We are pleased to share our insights and performance highlights with you.

2024 has been a transformative year for the Australian credit market. The increased interest and demand for credit assets have driven yields lower, both in listed and private markets. This shift has been accompanied by heightened competition from other fund managers and domestic and international banks. Despite these challenges, our focus on maintaining high credit standards and rigorous transaction analysis has ensured the resilience of our portfolio and a commitment to delivering best-in-class returns and income to our investors.

Key Themes of 2024

1. Increased Competition and Market Evolution: The Australian credit market has continued its evolution towards a more mainstream asset class. This shift has driven significant investment and sophistication within the industry, benefiting our investment model and making it an attractive destination for transactions.

2. Economic Contraction and Monetary Policy: The year saw typical signs of a contractionary phase, including a softening labour market and higher interest rates. We have closely monitored these developments, particularly the implications for the RBA cash rate and its impact on our investment strategy.

3. Asset-Backed Securities and Structural Protections: Our focus on asset-backed securities has been a cornerstone of our strategy. We have implemented robust structural protections to safeguard investor capital, ensuring that our investments can withstand economic stress and deliver consistent returns.

4. Fiscal Policy and Government Spending: Government spending and fiscal policy have played crucial roles in shaping economic conditions. We have balanced these factors with our investment decisions, maintaining a cautious approach to areas most affected by weakening GDP and employment conditions.

5. Investor Sophistication and Engagement: The growing prevalence of credit within investor portfolios has led to a more discerning investor base. We have been impressed by the sophistication of the Australian financial advice ecosystem and the detailed questions we receive about our strategies.

As we move into 2025, we remain cautiously optimistic. While uncertainties will always persist, we are confident in our ability to adapt and capitalise on emerging opportunities. Our investment approach will continue to emphasise diversification, quality, and sustainability. As markets shift and opportunities and risks arise, we pride ourselves on crafting considered and deliberate strategies that are proven over time and we are relentless in our commitment to protecting and growing our clients' wealth.