January 2023 – Market Commentary
The Fund delivered +0.74% in January, 7.45% over 12 months and 6.43% annualised since inception.
A key feature of the Manning Monthly Income Fund is its flexibility to move in and out of Australian credit sectors such as mortgages, consumer and business loans as fundamentals deteriorate or as superior opportunities present. Therefore, we are constantly assessing if the Fund should participate in each sector given the economic outlook and fundamentals within each. By contrast, single asset class funds (e.g. mortgage funds) are far more limited in their ability to reduce exposure to a sector in times of stress.
Manning’s recent quarterly macroeconomic outlook forum showed that the Australian property market and its impact on the economy is an important factor to consider. Our research found that while some parts of the property and mortgage market displayed poor fundamentals, attractive opportunities still exist when taking a conservative and diversified approach.
This approach focuses on targeting lower, loan-to-value ratio, more resilient assets, and lending only on a short-term basis. We deliberately avoid areas that we believe shall not perform through the cycle such as construction finance, rather favouring assets which would be attractive to a wide variety of potential buyers in the unlikely event of the asset not performing. With the property market changing in response to higher interest rates, it further highlights the need to make shorter-term investments where we are not locked into longer-dated assets. We are constantly evolving our approach in this sector although the overarching principles remain unchanged and, over 7 years, has resulted in no loss of capital, interest, or fees.
We are pleased to report strong client growth from new financial advisers seeking to diversify and reduce equity market risk and capture the value of the higher RBA Cash Rate, which continues to lift our expected return target to the current level of 8.35% net of fees.