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.
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.
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.
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.
