May 2023 – Market Commentary
The Fund delivered +0.79% in May, 8.70% over 12 months and 6.57% annualised since inception, continuing to deliver over 5% net return above the RBA cash rate.
As the RBA continues to move the cash rate higher, we increasingly believe that the performance of the different Australian credit sectors will diverge following a long period characterised as having low arrears and relatively consistent performance. For example, the performance of prime vs near prime mortgage borrowers will differ alongside unsecured business lending vs secured. The driver shall be the uneven nature in which the economic slowdown and higher mortgage repayments shall impact each.
Given this outlook, we anticipate more active management of the portfolio into sectors and structures best able to perform through this period. An opposing set and forget strategy based on a historical perspective shall see investors inherit additional risk, which we see as unwise.
Many Funds in the market limit access only to loans that they have originated. In this scenario, investors capital is confined to one lender and, most notably one sector. Investors, therefore, need to assess if that lender is the best in the market and, crucially, given the outlook, if that sector is the right place to be. Manning rather looks across the 200+ Australian lenders and uses its domain expertise and dedicated resources to find the most attractive lenders, invest with the right ones in the right sectors given the outlook and most importantly, use our scale to negotiate preferential terms, which typically have enhanced risk mitigants to further protect investor capital.
This multi-sector, multi-issuer approach, where we have considerable bargaining power given our scale, alongside our specialist resources with their domain expertise, is a powerful way to navigate what we see as a more challenging economic period ahead.
The Manning Monthly Income Fund was recently reviewed by Evergreen’s Rating, a specialist Australian Ratings House and was awarded their top rating, Highly Commended. An award they have never given to Fixed-Income/Credit Fund. Evergreen notes, “The Fund offers a way for wholesale investors to invest in a portfolio of mortgages, business and consumer debt, structured in such a way that credit risk is significantly reduced but still targets returns well in excess of the RBA cash rate” and “Evergreen Ratings believe the Fund is well-managed and will continue to generate returns and manage risk to the levels expected of the Fund” and finally, “Evergreen Ratings believe the Fund has a very high probability of meeting its objectives”. Thank you to our clients for making this possible and please reach out if you wish to receive this updated report.