October 2022 – Market Commentary
The Fund delivered +0.69% in October, 6.64% over 12 months and 6.33% annualised since inception.
We are pleased to report the Fund’s portfolio of assets continues to perform strongly, and we believe, well positioned to continue delivering strong income returns with capital stability. Returns were particularly strong in October due to high levels of deployment.
Inflation remains at the forefront of investors’ minds as the previous positive indicators of economic health, such as strong employment, high savings rate and solid retail spending, are now seen as key inhibitors to stabilizing our economy. The strength of these indicators has resulted in more liberal use of monetary policy, seeing one of the sharpest rises in interest rates in modern history, increasing the volatility of asset prices and making forecasting future states more problematic. It is therefore worth outlining how we approach the issue when making investment decisions on behalf of the Fund.
Within a fixed income or credit portfolio, investors can determine how long they invest before their capital amount is repaid (assuming the asset performs), a feature that other asset classes, like equities, typically do not share. This is typically referred to as ‘short dated’, an investment term of up to 12 months or ‘long dated’ where investment terms can reach 5 or 7 years until scheduled repayment. Manning has long favoured a short-dated investment approach that enables the Fund to be more actively positioned to suit the economic environment, with the Fund’s investments being regularly repaid. For example, the Fund currently has a weighted average life of 10 months or in other words, invested capital shall be on average returned in 10 months’ time. Compared to peers within the Diversified Credit universe, the average is 44 months or 4.5 times longer. We believe this has been particularly beneficial/added considerable value in, firstly, enabling us to be far more active in pivoting the portfolio towards areas which display strong fundamentals and secondly, preserving the value of the Funds holdings given the more imminent return of that capital. See peer relative performance below, where the Manning Monthly Income Fund has been the top-performing Fund over 1, 3 and 5 years.
(Investment Centre, Money Management, Nov 2022)
In summary, we have been actively managing the Fund to favour more short dated assets where we are less reliant on predicting the future. By reducing the reliance on longer term forecasting of economic conditions, we believe a superior return which is importantly, more stable, can be delivered.
A short-dated portfolio is appropriate given the uncertain economic times. While that view is unlikely to change in the short term, the need to add longer dated assets will likely re-emerge in the medium to long term. For example, locking in higher interest rate loans when global interest rates are falling is an attractive way to generate an additional return, providing the portfolio retains its flexibility to change and adapt to the market environment. We do however, feel this is some time away.