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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| M&g Credit Income Investment Trust Plc | LSE:MGCI | London | Ordinary Share | GB00BFYYL325 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| -0.60 | -0.65% | 91.60 | 92.20 | 94.00 | 93.80 | 92.60 | 92.60 | 227,422 | 16:35:19 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Trust,ex Ed,religious,charty | -716k | -2.57M | -0.0182 | -51.54 | 132.94M |
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M&G Credit Income Investment Trust plc (MGCI)
M&G Credit Income Investment Trust plc: Annual Financial Report
19-Feb-2020 / 07:00 GMT/BST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
M&G Credit Income Investment Trust plc
Annual Financial Report for the period from incorporation on 17 July 2018 to
31 December 2019
The full Annual Report and Accounts will shortly be available via the
Company's website at www.mandg.co.uk/creditincomeinvestmenttrust or by
contacting the Company Secretary on telephone number 020 7954 9529.
The Directors present the results of the Company for the period from
incorporation on 17 July 2018 to 31 December 2019.
Financial highlights
Key data as at
31 December 2019
Net assets (GBP'000) GBP132,232
Net asset value (NAV) per Ordinary Share 101.72p
Mid-market price per Ordinary Share 106.00p
Premium to NAV [a] 4.21%
Ongoing charges figure [a] [b] 0.93%
Return per Ordinary Share period [b] ended
31 December 2019
Capital return 2.7p
Revenue return 2.6p
NAV total return [a] 5.6%
Mid-market price total return [a] 8.2%
First interim dividend 2.09p
Second interim dividend 1.65p
Total dividends declared 3.74p
a) Alternative Performance Measure. Please see full Annual Report and
Accounts for further information.
b) From the date of Initial Public Offering (IPO) 14 November 2018.
Chairman's Statement
I am pleased to present the first annual report for M&G Credit Income
Investment Trust plc (the "Company"). The Company, which was incorporated on
17 July 2018, raised GBP100,000,000 pursuant to its Initial Public Offering
("IPO") and its Ordinary Shares commenced trading on the main market of the
London Stock Exchange on 14 November 2018. An additional 25,000,000 Ordinary
Shares were placed on 31 January 2019, followed by further tap issues
totalling 5,000,000 Ordinary Shares in May and June 2019.
Investment strategy
The Company aims to generate a regular and attractive level of income with low
asset value volatility by investing in a diversified portfolio of public and
private debt and debt-like instruments of which at least 70% is investment
grade. The Company intends, over time, to be invested mainly in private debt
instruments, which are those instruments not traded on a stock exchange and
are typically issued to small groups of institutional investors. This part of
the portfolio may include debt instruments which are nominally quoted but are
generally illiquid. Most of these will be floating rate instruments, purchased
at inception and with the intention to be held to maturity, or until prepaid
by issuers; shareholders can expect their returns from these instruments to
come primarily from the interest paid by the issuers. Our investment manager's
size, experience and reputation mean that it sees a high percentage of the
available market but it only invests in those instruments which it believes
are attractively priced: this takes time and is subject to market conditions.
The remainder of the Company's portfolio is invested in cash, cash equivalents
and quoted debt instruments, which are more readily available and which can
generally be sold at market prices when suitable opportunities arise. These
instruments may also be traded to take advantage of market conditions.
Shareholders can expect their returns from this part of the portfolio to come
from a combination of interest income and capital movements.
This annual report provides you with an array of information on your
investments. Your Board believes that it is not acceptable to invest without
reference to broader environmental, social and governance (ESG) factors. With
this in mind, please do look at the disclosures on our investment manager's
approach to ESG which appear below.
Share issuance and premium management
Your Directors believe that it is in the interests of shareholders for the
Company to increase its assets under management over time as this should
reduce its ongoing charges figure and provide greater market liquidity and
diversification for holders. The Company can do this by issuing additional
Ordinary Shares or a new class of C Shares. In each case, new shares will only
be issued when our investment manager has assured your Board of its confidence
that suitable investments can be made in a timely fashion using the proceeds
of such share issuance. The issue of new shares can also serve to manage the
premium to NAV per Ordinary Share at which the Company's shares trade by
meeting excess demand from investors that cannot be met by supply in the
market. Ordinary Shares will only be issued at a price which enhances the NAV
of the existing Ordinary Shares after all expenses.
On 31 January 2019, the Company announced that it had placed 25,000,000
additional Ordinary Shares in response to strong demand from the market, at an
issue price of 101p per Ordinary Share: this represented a premium to NAV as
at that date of 2.33%. The placing did not materially impact the investment
programme, which was still in its infancy.
By May 2019, the Ordinary Share price premium to NAV was again at levels which
your Directors considered high in light of the status of the investment
programme. Further issues of Ordinary Shares were undertaken in May and June
2019 to satisfy market demand and to seek to manage the premium.
An additional 5,000,000 Ordinary Shares were issued at a premium to the NAV of
not less than 2%, thereby enhancing the NAV per Ordinary Share. Our investment
manager considered the aggregate proceeds raised through these share issues
manageable in executing the overall deployment programme of the Company. Since
mid-June 2019, the share issuance programme has been paused until such time as
our investment manager perceives there to be better value to be found in
adding to the portfolio.
The Company's Ordinary Share price traded at an average premium to NAV of
4.64% during the period from IPO to 31 December 2019. On 31 December 2019, the
Ordinary Share price was 106p, representing a 4.21% premium to NAV as at that
date.
Investment performance
The opening NAV per Ordinary Share, being the gross proceeds of the IPO less
the IPO expenses, was 98.38p. The opening NAV on 1 January 2019 was 97.94p per
Ordinary Share and the NAV on 31 December 2019 was 101.72p per Ordinary Share:
taken with the interim dividend of 2.09p announced on 18 July 2019, these show
NAV total returns of 5.6% since the Company's launch and 6.0% for calendar
year 2019.
The start of 2019 presented good investment opportunities in public markets as
the Company's investment programme commenced. Our investment manager was able
to take advantage of investment grade corporate bonds performing strongly in
the first quarter of 2019, with credit spreads tightening. High yield markets
also made significant gains. The improving market continued into the second
quarter, which put downward pressure on yields generally, amid falling
expectations for global economic growth. With investors maintaining confidence
in the major central banks to take action to prevent a slowdown, credit
spreads remained tight as investors chased yield. In contrast, private market
opportunities were scarcer than anticipated in the first half of 2019.
During the second half of 2019, bond yields fell to new lows, credit spreads
tightened further and unusual yield curves developed in an environment of high
levels of political uncertainty.
Throughout the year, the flow of attractive opportunities to invest in private
debt instruments was disappointing. We ended 2019 with only 16.6% of the
portfolio in direct investments in this segment although these were
supplemented by our holding in the M&G European Loan Fund, thereby giving us a
total of 27.41% in higher yielding assets. Fortunately, the portfolio enjoyed
significant capital gains over the period as a result of the market's yield
compression. This more than made up for the lack of income in the short term
and resulted in your Company's strong total return performance.
Dividends
Your Company announced a second dividend for 2019 of 1.65p, payable on 28
February 2020. This payment, in combination with the Company's first dividend
of 2.09p per Ordinary Share (paid on 23 August 2019 for the period from its
IPO on 14 November 2018 to 30 June 2019), is equivalent to the annualised rate
of LIBOR plus 2.5% which was initially targeted: the total return for 2019, as
detailed above, was comfortably in excess of this.
Your Directors have chosen to apply the 'streaming' regime to that part of the
second dividend which was covered by the Company's interest income, net of
expenses. Accordingly, the Company has designated 1.33p per Ordinary Share as
an interest distribution and 0.32p per Ordinary Share as a dividend. The
Company made use of reserves derived from capital gains to support the
dividend, reflecting the investment performance of the Company's portfolio,
where capital growth was stronger than anticipated, but yields lower. The
Company's NAV per Ordinary Share as at 31 December 2019, adjusted for the
payment of the second dividend, was 100.07p, an increase of 1.7% from its
opening NAV of 98.38p per Ordinary Share as at IPO.
The Company uses the average daily three-month LIBOR as its reference for the
purposes of its targeted dividend rate.
Outlook
Your Company has performed well since its IPO with over half of its total
return coming from capital gains. These gains were principally a consequence
of the tightening of the overall credit markets; unfortunately, the other
effect of this is that cash income yields have reduced. This, taken with the
smaller than expected number of attractive private debt opportunities, means
that the annual dividend target of LIBOR plus 4% currently looks difficult to
achieve in the near term. Your Board believes that it should pay dividends
from income and prior capital gains. We propose to start the quarterly
dividends for 2020 at the increased annual dividend rate of LIBOR plus 2.75%,
calculated by reference to the opening NAV as at 1 January 2020, adjusted for
the payment of the second dividend in respect of last year; we will plan to
increase this as the Company's exposure to higher yielding private assets
grows.
Our investment manager continues to believe that a total return, and thus
ultimately a dividend yield, of LIBOR plus 4% is achievable over the longer
term, based on its long experience of credit markets through the cycle. Our
investment manager's annual management fee is being kept at the current level
of 50bps per annum of your Company's net asset value for the time being
instead of the originally agreed increase to 70bps. Your Directors are
extremely supportive of our investment manager's conservative approach; it is
not chasing yield at the expense of making the right investments. We have a
strong portfolio and our investment manager remains confident that it will
find attractive opportunities to increase yield while retaining a cautious and
steady approach.
Annual General Meeting
Our annual general meeting will be held on Monday 30 March 2020 at 1.30pm at
10 Fenchurch Avenue, London EC3M 5AG. This will include a presentation from
our investment manager on the performance of the Company and its future
prospects. I very much hope that you will be able to join us.
David Simpson
Chairman
18 February 2020
Investment manager's report
We are pleased to provide commentary on the factors that have impacted our
investment approach since IPO, the challenges that we as investors have
navigated and, above all, the performance and shape of the portfolio as we
have sought to build it in accordance with the mandate agreed at IPO.
The Company was launched on 14 November 2018 amid volatile market conditions
with asset price movements heavily influenced by geopolitical events and
macroeconomic uncertainty. This uncertainty continued throughout 2019,
resulting in periods of increased risk aversion and market turbulence.
We are delighted to be reporting strong performance against our key
performance indicators. Full details are provided below. However, highlights
include:
· delivering dividend payments per Ordinary Share of 3.74p (of which 2.09p
per Ordinary Share was paid in August 2019 and 1.65p per Ordinary Share paid
in February 2020);
· an annualised dividend yield since IPO of 3.13%; and
· mid-market price total return of 8.2%; and
· net asset value total return of 5.6%.
On an annualised basis, this total return is comfortably in excess of the
initial target of LIBOR plus 2.5% per annum.
As market conditions have changed throughout the period, our bottom-up,
investment-by-investment approach has enabled us to respond accordingly. With
a team of more than 100 credit analysts covering both the public and private
markets, we are well placed to review opportunities as and when they arise.
Leveraging this resource, our fund managers have continued to seek the right
investment opportunities to build the portfolio steadily, with a view to
delivering sustainable returns.
Deployment of funds and year-end portfolio positioning
Deployment of the cash raised at IPO and subsequent fundraisings in February,
May and June 2019 was efficient. Many of the initial investments were intended
to be a stepping stone until the right opportunities arose. Good examples of
this were the asset-backed securities (ABS) transactions made at the end of
2018. These comprised mostly AAA and some AA rated mortgage-backed floating
rate bonds and were ideal interim investments, being very low risk and easily
tradeable.
During the first half of 2019, the performance of global markets recovered
from the disappointing end to 2018. A general slowdown in economic growth and
muted inflation led to dovish commentary by many central banks, suggesting
that interest rates would remain on hold for the time being. This, combined
with better-than-expected earnings for many companies in the final quarter of
2018, drove market sentiment. Given this backdrop, it proved challenging to
meaningfully increase the yield of the portfolio. However, the Company had
some success in finding illiquid assets that lagged the rally in credit
markets. The availability of private debt opportunities was more constrained
than anticipated.
Fixed income markets were generally stronger in the third quarter, underpinned
by supportive central bank policies and further declines in government bond
yields. Investment grade and high yield credit markets benefited from these
moves. Yield curves became unusually shaped, with 10-year gilt yields falling
below short-term reference rates. This resulted in duration risk being
penalised rather than rewarded. With Brexit appearing no closer to a clear
resolution, bond yields continued to fall to record lows and the yield curve
developed a pronounced downward slope out to seven-year maturities. At this
point, we started selling three- to eight-year fixed corporates and
reinvesting in AAA floating rate ABS. In addition to realising some capital
gains, we were able to pick up yield, reduce interest rate volatility and
improve credit quality and liquidity. The overall impact of investment
activity during the third quarter was to modestly increase the yield on the
asset portfolio whilst reducing interest rate and spread duration against a
backdrop of public bond yields falling by 30-40 bps.
The fourth quarter saw government bond yields rise and spreads tighten. Our
interest rate hedge via gilt futures proved effective, and we took advantage
of the tighter spreads to sell some longer dated fixed rate corporates -
mostly in the financial sector - that had performed very well. These longer
dated fixed rate bonds had been purchased towards the end of 2018, and the
market rally at the end of the year enabled us to realise some attractive
capital gains on these investments. We continued to look for attractive
floating rate assets and we added GBP3m to our leveraged loan exposure as at 1
October, as they offered good relative value. The end of December saw
increased private asset deal activity, but with greater uncertainty as to
whether completion would be achieved before year-end. By investing in the M&G
European Loan fund we are able to gain access to the private European leverage
loan market which has proved to be typically more stable than traditional
public debt markets and which has historically provided an attractive level of
income on a risk vs return basis. In accessing this market via a collective
rather than holding direct exposure to any one issuer, we are able to maintain
the risk profile of the portfolio in line with the Company's objectives.
We consider the portfolio as at 31 December 2019 to be well diversified with
respect to issuers and sectors, which provides a strong platform for building
on during the course of 2020. Whilst only 27.41% of the portfolio (including
the investment in collective loans) was invested in private assets at the
year-end, with the yield profile of the portfolio therefore lower than
anticipated, we continue to strive to make the right investments for the
delivery of long-term sustainable performance.
Outlook
With public corporate bond yields at historic lows, rather than chasing yield,
our inclination is to continue to be defensive in our approach. Substantial
liquidity remains in the portfolio, in the form of AAA rated floating rate
ABS, which should enable us to access further private deals when opportunities
arise or take advantage of any opportunities should markets sell off. Our
longer-term aims for the portfolio remain unchanged.
The global outlook continues to be uncertain and the UK, in particular, could
be subject to considerable economic and political turbulence around its exit
from the EU and trade negotiations. This will inevitably bring both challenges
and opportunities.
M&G Alternatives Investment Management Limited
18 February 2020
Portfolio analysis
Top 20 holdings
as at 31 December 2019 Percentage of portfolio of
investment (including cash on
deposit and derivatives)
M&G European Loan Fund 10.81
Hall & Woodhouse 1% 30 Dec 2023 1.70
Sonovate Limited 1% 12 Apr 2021 1.59
Warwick Finance Residential 1.54
Mortgages Number One 1.9996% 21
Sep 2049
Silverstone Master Issuer 1.53
1.1654% 21 Jan 2070
NewDay Partnership Funding 1.53
2017-1 1.4306% 15 Dec 2027
Paragon Mortgages No 25 1.4371% 1.51
15 May 2050
RIN II 3.7841% 10 Sep 2030 1.45
Brass No.6 1.1675% 16 Dec 2060 1.44
Marston's Issuer 2.35% 15 Oct 1.37
2031
Yorkshire Building Society 1.32
3.375% 13 Sep 2028
Westbourne 2016 1 WR Senior 1% 1.30
30 Sep 2023
Leeds Building Society 3.75% 25 1.19
Apr 2029
Gongga 1% 02 Aug 2025 1.17
Hammerson 6% 23 Feb 2026 1.16
Ripon Mortgages 2.0024% 20 Aug 1.16
2056
NewRiver REIT 3.5% 07 Mar 2028 1.15
Kennedy Wilson Europe Real 1.12
Estate 3.95% 30 Jun 2022
Castell 2018-1 1.943% 25 Jan 1.08
2046
Finsbury Square 2018-2 1.7286% 1.07
12 Sep 2068
Total 36.19
Source: State Street
Geographical exposure
as at 31 December 2019 Percentage of portfolio of investments
(excluding cash on deposit and
derivatives)
United Kingdom 70.26%
Global 14.37%
United States 5.76%
France 2.61%
Germany 2.05%
Italy 1.60%
Netherlands 1.17%
Switzerland 0.92%
European Union 0.83%
Hong Kong 0.43%
100.0%
Portfolio overview
as at 31 December 2019 %
Cash on deposit 1.85
Public 70.34
Asset backed securities 37.66
Bonds 32.68
Private 27.41
Asset backed securities 0.14
Bonds 0.81
Investment funds 10.81
Loans 11.28
Other 4.37
Derivatives 0.40
Debt derivatives 0.12
Forwards 0.28
Portfolio of investments 100.00
Source: State Street
Credit rating breakdown
as at 31 December 2019 %
Unrated 0.40
Derivatives 0.40
Cash and investment grade 79.85
Cash on deposit 1.85
AAA 23.94
AA+ 3.39
AA 4.16
AA- 2.54
A+ 0.26
A 0.33
A- 1.02
BBB+ 8.79
BBB 9.26
BBB- 15.88
M&G European Loan Fund ("ELF") (note) 8.43
Sub-investment grade 19.75
BB+ 4.58
BB 4.47
BB- 2.81
B+ 1.17
B 2.90
B- 1.44
M&G European Loan Fund ("ELF") (note) 2.38
Portfolio of investments 100.00
Source: State Street
Note: ELF is an open-ended fund managed by M&G which invests in leveraged
loans issued by, generally, substantial private companies located in the UK
and Continental Europe. ELF is not rated and the Investment Manager has
determined an implied rating for this investment, utilising rating
methodologies typically attributable to collateralised loan obligations. On
this basis, 78% of the Company's investment in ELF has been ascribed as being
investment grade, and 22% has been ascribed as being sub-investment grade.
These percentages have been utilised on a consistent basis for the purposes of
determination of the Company's adherence to its obligation to hold no more
than 30% of its assets in below investment grade securities.
Top 20 holdings % Company description
M&G European Loan Fund Open-ended fund managed by M&G
which invests in leveraged loans
issued by, generally,
substantial private companies
10.81% located in the UK and
Continental Europe. The fund's
objective is to create
attractive levels of current
income for investors while
maintaining relatively low
volatility of NAV. (Private.)
Hall & Woodhouse 1% 30 Dec 2023 Bilateral loan to a regional UK
brewer that manages a portfolio
of 219 freehold and leasehold
pubs. (Private.)
1.70%
Sonovate Limited 1% 12 Apr 2021 Bilateral loan to a company
providing companies in the
recruitment industry with an
integrated service that
1.59% incorporates placement
management, invoicing and
financing. (Private.)
Warwick Finance Residential High grade ABS (AAA), UK RMBS.
Mortgages Number One 1.9996% 21 Mezzanine tranche of
Sep 2049 securitisation backed by
portfolio of UK non-conforming
residential mortgages originated
by Co-operative Bank. (Public.)
1.54%
Silverstone Master Issuer High grade ABS (AAA). UK RMBS.
1.1654% 21 Jan 2070 Securitisation of residential
British mortgage loans
originated and/or acquired by
Nationwide Building Society.
1.53% (Public.)
NewDay Partnership Funding High grade ABS (AAA). UK credit
2017-1 1.4306% 15 Dec 2027 card. Securitisation of a
portfolio of designated consumer
credit card, store card and
instalment credit accounts
1.53% initially originated or acquired
by NewDay Ltd in the UK.
(Public.)
Paragon Mortgages No 25 1.4371% High grade ABS (AAA). UK RMBS.
15 May 2050 Five-year revolving
securitisation of a portfolio of
UK buy-to-let mortgages in
England and Wales, originated
1.51% and serviced by Paragon.
(Public.)
RIN II 3.7841% 10 Sep 2030 Mixed CLO (AAA). Consists
primarily of senior secured
infrastructure finance loans
managed by RREEF America
1.45%
L.L.C. (Public.)
Brass No.6 1.1675% 16 Dec 2060 High grade ABS (AAA), UK RMBS.
Senior tranche of securitisation
backed by portfolio of UK
residential mortgages orginated
1.44% by Accord Mortgages Ltd.
(Public.)
Marston's Issuer 2.35% 15 Oct Marston's PLC is a leading
2031 independent brewing and pub
retailing business. Marston's
Issuer PLC operates as a special
purpose entity on behalf of
1.37% Marstons PLC, formed for the
purpose of issuing debt
securities to repay existing
credit facilities, refinance
indebtedness, and for
acquisition purposes. (Public.)
Yorkshire Building Society Yorkshire Building Society
3.375% 13 Sep 2028 provides banking services. The
bank offers saving accounts,
mortgages, savings, insurance,
life plans, credit cards, loans
1.32% and travel products to customers
in the United Kingdom. This is a
subordinated, fixed-to-floating
callable bond. (Public.)
Westbourne 2016 1 WR Senior 1% Westbourne provides working
30 Sep 2023 capital finance to SMEs in the
UK. The company is focused on
small borrowers and has
1.30%
employed an advanced technology
platform for the application,
underwriting and monitoring of
loans. (Private.)
Leeds Building Society 3.75% 25 Leeds Building Society provides
Apr 2029 financial services. The company
offers savings accounts,
mortgages, life cover and home
insurance services to customers
1.19% in the United Kingdom. This is a
subordinated, fixed-to-floating
callable bond. (Public.)
Gongga 1% 02 Aug 2025 Regulatory capital trade by a
major international bank
referencing a US$2bn portfolio
of loans to companies domiciled
1.17% in 36 countries. (Private.)
Hammerson 6% 23 Feb 2026 The company develops, builds and
manages commercial buildings,
offices and shopping centres
operating throughout the United
1.16% Kingdom. It also has investment
and development activities in
France and Germany. Senior
unsecured, fixed bond. (Public.)
Ripon Mortgages 2.0024% 20 Aug High grade ABS (AA+/AAA). UK
2056 RMBS. The portfolio comprises
buy-to-let loans originated by
Bradford and Bingley and
Mortgage Express, secured
1.16% against residential properties
located in England and Wales.
(Public.)
NewRiver REIT 3.5% 07 Mar 2028 NewRiver REIT PLC operates as a
real estate investment trust
investing in retail properties
throughout the United Kingdom.
1.15% Fixed, callable bond. Senior
unsecured. (Public.)
Kennedy Wilson Europe Real Kennedy Wilson Europe Real
Estate 3.95% 30 Jun 2022 Estate Limited provides real
estate services. The company
focuses on investment management
brokerage, research, auction,
1.12% sales, research and development
property services. Fixed,
callable bond. Senior unsecured.
(Public.)
Castell 2018-1 1.943% 25 Jan High grade ABS (AAA), UK RMBS.
2046 Backed by a portfolio of
mortgage loans originated by
Optimum Credit Limited and
secured against residential
1.08% properties located in England,
Wales and Scotland. (Public.)
Finsbury Square 2018-2 1.7286% High grade ABS (AAA), UK RMBS.
12 Sep 2068 Backed by a portfolio comprising
mortgage loans acquired by Koala
Warehouse Limited and secured
over residential properties
1.07% located in England and Wales.
(Public.)
Strategic Review
The Directors present the Strategic Report of the Company for the period ended
31 December 2019. The Strategic Report aims to provide Shareholders with the
information to assess how the Directors have performed their duty to promote
the success of the Company during the period under review.
Business and status of the Company
The Company was incorporated on 17 July 2018 and the Initial Public Offering
(IPO) of the Company's shares took place on 14 November 2018. It is registered
in England and Wales as a public limited company and is an investment company
within the terms of section 833 of the Companies Act 2006. The principal
activity of the Company is to carry on business as an investment trust. The
Company has been approved by HM Revenue & Customs as an authorised investment
trust under sections 1158 and 1159 of the CTA 2010, subject to there being no
serious breaches of regulations. In the opinion of the Directors, the Company
is directing its affairs so as to enable it to continue to qualify for such
approval.
The Company's shares have a listing on the premium segment of the Official
List of the FCA and trade on the London Stock Exchange's (LSE) main market for
listed securities.
Objective
The Company aims to generate a regular and attractive level of income with low
asset value volatility.
Investment policy
The Company seeks to achieve its investment objective by investing in a
diversified portfolio of public and private debt and debt-like instruments
(Debt Instruments). Over the longer term, it is expected that the Company will
be mainly invested in Private Debt Instruments. This part of the portfolio may
include Debt Instruments which are nominally quoted but are generally
illiquid.
The Company operates an unconstrained investment approach and investments may
include, but are not limited to:
· asset-backed securities, backed by a pool of loans secured against,
amongst other assets, residential and commercial mortgages, credit card
receivables, auto loans, student loans, commercial loans and corporate
loans;
· commercial mortgages;
· direct lending to SMEs, including lease finance and receivables financing;
· distressed debt opportunities to companies undergoing balance sheet
restructuring;
· infrastructure-related debt assets;
· leveraged loans to private equity owned companies;
· public Debt Instruments issued by a corporate or sovereign entity which
may be liquid or illiquid;
· private placement debt securities issued by both public and private
organisations; and
· structured credit, including bank regulatory capital trades.
The Company invests primarily in sterling-denominated Debt Instruments. Where
the Company invests in assets not denominated in sterling, it is generally the
case that these assets will be hedged back to sterling.
Investment restrictions
There are no restrictions, either maximum or minimum, on the Company's
exposure to sectors, asset classes or geography. The Company looks to achieve
diversification and a spread of risk by adhering to the limits and
restrictions set out below.
Once fully invested, the Company's portfolio will comprise a minimum of 50
investments.
The Company may invest up to 30% of gross assets in below investment grade
Debt Instruments, which are those instruments rated below BBB- by S&P or Fitch
or Baa3 by Moody's or, in the case of unrated Debt Instruments, which have an
internal M&G rating below BBB-.
The following restrictions will also apply at the individual Debt Instrument
level which, for the avoidance of doubt, does not apply to investments to
which the Company is exposed through collective investment vehicles:
Rating Secured Debt Unsecured Debt
Instruments Instruments
(% of Gross Assets) (% of Gross Assets)
[a]
AAA 5% 5% [b]
AA/A 4% 3%
BBB 3% 2%
Below investment 2% 1%
grade
[a] Secured Debt Instruments are secured by a first or secondary fixed and/or
floating charge.
[b] This limit excludes investments in G7 Sovereign Instruments.
For the purposes of the above investment restrictions, the credit rating of a
Debt Instrument is taken to be the rating assigned by S&P, Fitch or Moody's,
or in the case of unrated Debt Instruments, an internal rating by M&G. In the
case of split ratings by recognised rating agencies, the second-highest rating
will be used.
The Company typically invests directly, but it may also invest indirectly
through collective investment vehicles, which are expected to be managed or
advised by an M&G entity. The Company may not invest more than 20% of gross
assets in any one collective investment vehicle and not more than 40% of gross
assets in collective investment vehicles in aggregate. No more than 10% of
gross assets may be invested in other investment companies that are listed on
the Official List.
Unless otherwise stated, the above investment restrictions apply at the time
of investment.
Borrowings
The Company is managed primarily on an ungeared basis, although the Company
may from time to time be geared tactically through the use of borrowings.
Borrowings would principally be used for investment purposes, but may also be
used to manage the Company's working capital requirements or to fund market
purchases of shares. Gearing represented by borrowing will not exceed 30% of
the Company's net asset value (NAV), calculated at the time of draw down, but
is typically not expected to exceed 20% of the Company's NAV.
Hedging and derivatives
The Company does not employ derivatives for investment purposes. Derivatives
may however be used for efficient portfolio management, including for currency
hedging.
Cash management
The Company may hold cash on deposit and may invest in cash equivalent
investments, which may include short- term investments in money market-type
funds ("Cash and Cash Equivalents").
There is no restriction on the amount of Cash and Cash Equivalents that the
Company may hold and there may be times when it is appropriate for the Company
to have a significant Cash and Cash Equivalents position. For the avoidance of
doubt, the restrictions set out above in relation to investing in collective
investment vehicles do not apply to money market type funds.
Changes to the investment policy
Any material change to the Company's investment policy set out above will
require the approval of Shareholders by way of an ordinary resolution at a
General Meeting and the approval of the UK Listing Authority.
Investment process
The investment process for the Company consists of a number of stages: the
decision to invest, monitoring of investments and ongoing engagement and
divestment.
Investment decision-making is undertaken by the Investment Manager, who
determine whether an investment is appropriate for the Company's investment
mandate. Investments are only made after extensive research based on
information, research and analysis from our in-house analysts and external
sources. The investment process is designed to ensure that the risk and return
profile of investments is fully understood.
Regular monitoring of investments enables determination of whether an
investment remains appropriate. This includes monitoring the performance of
investments by fund managers, analysts and internal control and governance
processes. The Investment Manager proactively engages with relevant parties on
any issue which may, potentially, affect an investment's ability to deliver
sustainable performance in line with expectations.
At some point, the Investment Manager may decide to divest from an investment
(or the investment may complete in line with agreed terms, including
pre-payment). This might be for a variety of reasons including; the investment
being no longer suitable for the investment mandate, the outcome of engagement
being unsatisfactory or as a result of the investment team's valuation
assessment. Investment decision making is only undertaken by the fund managers
designated by the Investment Manager.
Key performance indicators
In order to measure the success of the Company in meeting its objectives and
policy, and to evaluate the performance of the Investment Manager, the
Directors take into account the following key performance indicators (KPIs):
at IPO as at or period ending
14 November 2018 31 December 2019
NAV per share 98.38p 101.72p
Mid-market price per 100.00p 106.00p
Ordinary Share
Premium to NAV [a] 1.65% 4.21%
Annualised dividend - 3.13%
yield
Dividends declared per 3.74p
Ordinary Share
Revenue return per - 2.6p
Ordinary Share
NAV total return [a] - 5.6%
Mid-market price total - 8.2%
return [a]
Ongoing charges figure - 0.93%
[a]
[a] Alternative performance measures.
Share price discount or premium to NAV
The share price premium to NAV as at 31 December 2019 was 4.21%. During the
period from IPO the shares traded at an average premium to NAV of 4.64%.
Dividend yield
The Company paid its first dividend of 2.09p per Ordinary Share on 18 July
2019. A second dividend of 1.65p (in respect of the period ending 31 December
2019) will be paid on 28 February 2020. The annualised dividend yield for the
period since IPO on the closing share price on 31 December 2019 was 3.13%.
Portfolio performance
In support of the Company's investment objective, the Board monitors the
portfolio performance against a number of total return indices in public
investment grade and high yield markets. These are not explicit benchmarks but
provide relevant data for assessing the portfolio's performance.
In addition, progress of deployment of funds into private assets is monitored
alongside the balance of fixed to floating rate coupons, yield to maturity and
modified duration of the portfolio. Further details are provided in the
Chairman's statement and Investment Manager's reports above.
Ongoing charge
The Board reviews the costs of running the Company calculated using the
Association of Investment Companies' (AIC) methodology for the ongoing charge.
Risk management
Role of the Board
The Directors have overall responsibility for risk management and internal
control within the Company. They recognise that risk is inherent in the
Company's operation and that effective risk management is an important element
in the success of the organisation. The Directors have delegated
responsibility for the assurance of the risk management process and the review
of mitigating controls to the Audit Committee. The Directors, when setting the
risk management strategy, also determine the nature and extent of the
significant risks and their risk appetite in implementing this strategy.
In arriving at its judgement of what risks the Company faces, the Board has
considered the Company's operations in the light of the following factors:
· the nature and extent of risks it regards as acceptable for the Company to
bear in line with its overall business objective;
· the threat of such risks becoming reality;
· the Company's ability to reduce the incidence and impact of risk on its
performance;
· the cost to the Company and benefits related to the review of risk and
associated controls of the Company; and
· the extent to which the third-party service providers operate the relevant
controls.
Principal risks and uncertainties
The Company is exposed to a variety of risks and uncertainties that could
cause the valuation of its assets and/or the income from the investment
portfolio to fluctuate. The Board, through delegation to the Audit Committee,
has undertaken a robust assessment and review of the principal risks facing
the Company, together with a review of any new risks that may have arisen
during the period, including those that would threaten its business model,
future performance, solvency or liquidity. These risks are formally documented
within the Company's key risk register, so that the risks identified and the
controls in place to mitigate those risks can be monitored. The risks are
assessed on the basis of the likelihood of them happening, the impact on the
business if they were to occur and the effectiveness of the controls in place
to mitigate them.
The key risks identified by the Board, and the associated key mitigants and
controls, are set out below:
? Market risk and credit risk
Market risk embodies the potential for both losses and gains and includes
foreign currency risk, interest rate risk and price risk. Market risk mainly
arises from uncertainty about future values of financial instruments
influenced by price, currency and interest rate movements. It represents the
potential gain or loss that the Company may suffer through holding market
positions in investments in the face of market movements.
Foreign currency risk is the risk that the fair value of future cash flows of
a financial instrument will fluctuate because of changes in foreign exchange
rates. The Company is exposed to risks that the exchange rate of its reporting
currency relative to other currencies may change in a manner that has an
effect on the value of the portion of the Company's assets which are
denominated in currencies other than its own reporting currency. Hedging
instruments are used by the Investment Manager to manage foreign currency
risk.
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates. The Company's investments are in some cases subject to interest rate
risk. In relation to fixed rate obligations, when interest rates decline, the
values can be expected to rise, and, conversely, when interest rates rise, the
value of fixed rate obligations can be expected to decline. Hedging
instruments are used by the Investment Manager to manage interest rate risk.
Market price risk includes changes in market prices, other than those arising
from foreign currency or interest rate risk, which may affect the value of
investments, such as macroeconomic and geopolitical events and trends, and
sectoral influences.
As the Company invests in public and private debt instruments, it is regularly
exposed to market risk and the value of the Company's portfolio fluctuates in
response to developments in financial markets. The Board has put in place
limits on the Company's gearing, portfolio concentration and use of
derivatives, which it believes to be appropriate to keep the Company's
investment portfolio adequately diversified and to manage risk.
Because of its investment strategy, the Company is also materially exposed to
credit risk, which is the risk that one party to a financial instrument will
cause a financial loss for the other party by failing to discharge an
obligation. The main concentration to which the Company is exposed arises from
the Company's investments in Debt Instruments. The Company's policy to manage
this risk is to invest no more than 30% of the Company's assets in Debt
Instruments that have a minimum credit rating below BBB- (or equivalent).
Within the above limit, the Company may also invest in unrated assets where a
rating is assigned by the Investment Manager using an internal methodology
that is based on the categorisations used by rating agencies. When new
investment opportunities arise, a detailed credit review is undertaken by the
Investment Manager. A fundamental qualitative and quantitative assessment of
both business and financial risk, supported by appropriate financial
modelling, alongside a review of the corporate structure and issuance document
form the basis of the credit review. On an ongoing basis, the Investment
Manager monitors the Company's investments against a variety of measures
including financial performance and their progress against a variety of
covenants.
The Company is also exposed to counterparty credit risk on trading derivative
products, Cash and Cash Equivalents, amounts due from brokers and other
receivable balances. The Company only transacts with parties that the
Investment Manager considers to be reliable from a credit risk perspective.
? Investment management performance risk
Other than in respect of market risk, the performance of the Company's
portfolio of assets depends primarily on the investment strategy, asset
allocation and stock selection decisions taken by the Investment Manager
within the parameters and constraints imposed by the Company's investment
policy. The Investment Manager applies a 'three lines of defence' model for
risk management, incorporating the individual fund manager and line
management; independent risk and compliance functions and reporting
structures; and internal audit. Measures and tools such as volatility
estimation, value at risk analysis and stress testing are used in order to
better understand risk concentrations within the portfolio.
? Liquidity risk
The Company invests in public and private debt instruments. Certain of these
investments may be difficult to value or realise (if at all). The market price
that is achievable for such investments may ultimately therefore be lower than
the carrying values of these assets as reflected in the Company's reported NAV
per Ordinary Share from time to time.
As the Company is closed-ended, it is not exposed to the same risks of
liquidity mismatch that are inherent in the management of portfolios owned by
open-ended funds. This enables the Company to invest in assets that have
limited or no secondary market liquidity in order to seek to capture the
additional yield that is generally available compared to more liquid
instruments.
Before the Company's fifth AGM in 2024, the Board will submit to Shareholders
proposals to enable them to realise the value of their Ordinary Shares. The
Board monitors the liquidity profile of the Company's assets on a quarterly
basis through the receipt of an asset liquidity analysis from the Investment
Manager.
? Operational risk
In common with most other investment trusts, the Company has no executive
directors, no executive management and no employees. The Company delegates key
operational tasks to third-party service providers that are specialists in
their fields, as follows:
· management of the Company's investment portfolio - M&G Alternatives
Investment Management Limited;
· preparation and maintenance of the Company's Financial Statements and
maintenance of its records - State Street Bank and Trust Company;
· Company Secretarial and registrar services - Link Asset Services;
· worldwide custody of the Company's assets - State Street Bank and Trust
Company; and
· safekeeping and depositary services - State Street Trustees Limited.
Failure by any service provider to carry out its obligations to the Company in
accordance with the terms of its appointment could have a materially
detrimental impact on the operation of the Company or administration of its
investments. The termination of the Company's relationship with any
third-party service provider or any delay in appointing a replacement for such
service provider could disrupt the business of the Company materially and
could have a material adverse effect on the Company's performance. Service
provider oversight is conducted through ongoing interaction through the
Management Engagement and Audit Committees and is formalised through an annual
evaluation process.
? Dividend policy risk
The level of dividends that the Board will declare, and the extent to which
those dividends comprise 'streamed' income on the one hand and capital profits
on the other hand, will be dependent largely on the performance of the
Company's investment portfolio over time and the market conditions that exist
during relevant performance periods. Apart from asset selection and market
conditions, factors that may also affect performance include, inter alia, the
Company's level of gearing, its accounting policies, changes in variable
interest rates, the level of loan or bond prepayments and a change in the tax
treatment of the interest received by the Company. The Investment Manager runs
a dividend projection model that is regularly reviewed by the Board.
· Regulatory, legal and statutory risk: changes in laws, government policy
or regulations
The Company is subject to laws, government policy and regulations enacted by
national and local governments. Any change in the law, regulation or
government policy affecting the Company may have a material adverse effect on
the value of its investments, its ability to carry on its business and
successfully pursue its investment policy and on its earnings and returns to
Shareholders. In particular, the Company is required to comply with certain
requirements that are applicable to listed closed-ended investment companies,
including section 1158 of the Corporation Tax Act 2010. Any failure to comply
may potentially result in a loss of investment trust company status. The
Company must comply with the Listing Rules, Prospectus Rules, the Disclosure
Guidance and Transparency Rules, the Market Abuse Regulation (MAR) and the
rules of the London Stock Exchange. Any failure in future to comply with any
future changes to such rules and regulations may result in the Shares being
suspended from trading on the London Stock Exchange. The Company mitigates any
such failure by delegating key operational tasks to specialist third-party
service providers combined with close oversight and monitoring through the
Audit Committee.
MAR can be defined as Regulation (EU) No 596/2014 of the European Parliament
on market abuse, otherwise known as the Market Abuse Regulation, or "MAR". It
requires the Board of the Company to adopt certain processes to ensure that,
inter alia, price sensitive information must be, subject to certain
exemptions, promptly disclosed to the public via a regulatory news service in
order to ensure an orderly market in the Company's shares. The risk to the
company of failure to comply with MAR is mitigated by close Board oversight
and monitoring through the compliance function at the Investment Manager.
UK exit from the European Union
The UK left the European Union (EU) on 31 January 2020 ("Brexit"). Following
this date, the UK entered a transition period expected to last until 31
December 2020. During this period, the UK's trading relationship with the EU
is expected to remain the same whilst a new trade and tariff arrangement is
negotiated.
The negotiation of the UK's future trading relationship with the EU could
create uncertainty in the UK and certain EU markets, which may lead to
fluctuations in the performance of the Company, its NAV, and its earning and
returns to Shareholders. It could also potentially make it more difficult for
the Company to raise capital in the EU and/or increase the regulatory
compliance burden on the Company. This could restrict the Company's future
activities and thereby negatively affect returns. As such, it is not possible
to state the impact that post-Brexit trade negotiations will have on the
Company and its investments.
Emerging risks
The Board have considered the emerging risks for the Company and have not
identified any supplementary material risk factors beyond those stated above.
Viability statement
The UK Financial Reporting Council (FRC) maintains the UK's Corporate
Governance Code ("the Code") to promote high quality corporate governance and
reporting. Under the Code, the Directors are required to state that in their
opinion the Company's resources are adequate for it to continue in business
for at least 12 months from the date of the Financial Statements and,
therefore, it is appropriate that the Financial Statements be prepared on a
going concern basis. This statement appears below.
In accordance with provision C.2.2 of the 2016 Code, the Directors are also
required to assess the prospects for the Company over a longer period than the
12 months referred to in the going concern guidance and statement. The
Directors have elected to review the viability of the Company for a four-year
period up to the AGM of the Company to be held in 2024 by reference to the
weighted average life of the Debt Instruments in the Company's portfolio and
the potential need to return cash to Shareholders following the 2024 AGM.
In assessing the viability of the Company over this four-year period, the
Directors have considered a number of factors. Most importantly, they have
weighed the characteristics of a closed- end fund and the investment policy of
the Company against the risks the Company faces as set out in this Strategic
Report.
The Directors have assumed that neither the closed-ended structure of the
Company, the investment policy it follows nor the risks it faces are likely to
change substantially, or for the worse with respect to the viability of the
Company, over the four- year period they have selected for the purposes of
this viability statement. The Directors have also assumed that the Company
will continue to maintain a sufficient level of liquidity and to generate
substantial income for the foreseeable future in order to meet its
liabilities. As the Directors are ultimately responsible for ensuring that the
investment policy of the Company is followed by the Investment Manager, they
are confident in making these assumptions about the future of the Company.
The Company is an investment trust, not a trading company, and it invests in a
diversified portfolio. As a closed-ended fund, it is not subject to
redemptions by Shareholders prior to, potentially, the 2024 exit opportunity.
The Company's portfolio also generates substantial levels of income to meet
its expenses, which are largely fixed overheads that represent a small
percentage of its net assets. Based on their assessment of the nature of the
Company, its investment policy and financial resources, the Directors have a
reasonable expectation that the Company will be able to continue in operation
and to meet its liabilities as they fall due over the next four years.
Going concern statement
The activities of the Company, together with the factors likely to affect its
future development, including its performance, financial position, cash flows
and liquidity position, are described in the Strategic Report.
In addition, the Company's policies and processes for managing its key
financial risks are described in note 13 below.
As at 31 December 2019, the Company's total assets less current liabilities
were GBP132.23m. The Directors have reviewed the financial projections of the
Company from the date of this report, which shows that the Company will be
able to generate sufficient cash flows in order to meet its liabilities as
they fall due.
As a consequence, the Directors believe that the Company continues to be well
placed to manage its business risks successfully. The Directors have a
reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future and for a period of 12 months
from the date of the approval of this Annual Report. Accordingly, they
continue to adopt the going concern basis in preparing this Annual Report and
Accounts.
Investment management and third-party service provider arrangements
The Board has overall responsibility for the Company's activities, including
the review of investment activity and performance and the control and
supervision of all suppliers of services to the Company, including the
Investment Manager. It is also responsible for the determination of the
Company's investment policy and strategy and the Company's system of internal
and financial controls, including ensuring that commercial risks and financing
needs are properly considered and that the obligations of a public limited
company are adhered to.
To assist the Board in the operations of the Company, arrangements have been
put in place to delegate authority for the performance of day-to-day
operations of the Company to the Investment Manager and other third-party
service providers. The Board has appointed the Investment Manager to manage
the Company's investment portfolio within guidelines set by the Board.
The Investment Manager is in frequent contact with the Board and supplies the
Directors with regular updates on the Company's activities and detailed
reports at each Board meeting.
Investment Manager
The Company has appointed M&G Alternatives Investment Management Limited (the
"Investment Manager") to act as the Company's Alternative Investment Fund
Manager (AIFM) for the purposes of the AIFM Directive and, accordingly, the
Investment Manager is responsible for providing discretionary portfolio
management and risk management services to the Company.
The Investment Management Agreement dated 26 September 2018 is for an initial
term of five years from 14 November 2018 and thereafter subject to termination
on not less than six months' written notice by either party. The Investment
Management Agreement can be terminated at any time in the event of the
insolvency of the Company or the Investment Manager or in the event that the
Investment Manager ceases to be authorised and regulated by the FCA (if
required to be so authorised and regulated to continue to carry out its duties
under the Investment Management Agreement).
Under the Investment Management Agreement, the Investment Manager is entitled
to receive from the Company an investment management fee, which is calculated
and paid quarterly in arrears at an annual rate of (i) 0.5% per annum of the
prevailing published NAV until the end of the Company's first accounting
period, the 31 December 2018; and (ii) 0.7% per annum of the prevailing
published NAV thereafter.
The investment management fee was amended by way of a side letter to the
Investment Management Agreement dated 22 October 2019 so that the fee payable
will be retained at the annual rate of 0.5% beyond the 31 December 2019 until
such time as the Board agrees that the portfolio is appropriately positioned
to meet the Company's medium term annualised dividend target of LIBOR plus 4%.
Where the Company invests in a collective investment vehicle that is managed
or advised by an M&G entity, the Investment Manager will reduce its investment
management fee by the amount of any equivalent management fee that is charged
to such collective investment vehicle or such entity will rebate its
management fee such that the Investment Manager ensures the Company is not
charged twice. The above arrangement will not apply to any other fees or
expenses charged to the Company or any such entity in which it invests.
The Investment Manager is also entitled to be paid half of any arrangement fee
charged by the Company to the issuer of a Debt Instrument in which the Company
invests. The balance of any arrangement fee is retained by the Company.
Continuing appointment of Investment Manager
As at the date of this Report, the Directors are of the opinion that the
Investment Manager has executed the Company's investment strategy according to
the Board's expectations. Accordingly, the Directors believe that the
continuing appointment of M&G Alternatives Investment Management Limited as
the Investment Manager of the Company, on the terms agreed, is in the best
interests of the Company and its Shareholders as a whole.
Administrator
Under an Administration Agreement dated 26 September 2018, the Company has
appointed State Street Bank and Trust Company to act as administrator. The
administrator provides day-to-day administration of the Company and is also
responsible for the Company's general administrative functions, including the
calculation and publication of the NAV and maintenance of the Company's
accounting and statutory records.
The Administration Agreement is terminable, inter alia, upon not less than six
months' written notice. The Administration Agreement is also terminable
immediately upon the occurrence of certain standard events, including the
insolvency of the Company or the Administrator or a party committing a
material breach of the Administration Agreement (where such breach has not
been remedied within 30 calendar days of written notice being given).
Depositary
Under a Depositary Agreement dated 26 September 2018, the Company has also
appointed State Street Trustees Limited as depositary to provide depositary
services to the Company, which will include safekeeping of the assets of the
Company. The Depositary is permitted to delegate (and authorise its delegates
to sub-delegate) the safekeeping of the assets of the Company.
The Administrator and Depositary are entitled to a combined fee (the "State
Street Fee"). The State Street Fee shall be up to 0.08% of the NAV per annum.
The fee is subject to a minimum rate, whereby if the NAV is less than GBP250m,
the fee will be calculated as if the NAV were GBP250m. The State Street Fee is
calculated monthly and payable monthly in arrears.
Custodian
The Depositary has delegated safekeeping duties as set out in the AIFM
Directive and the FCA Handbook to State Street Bank & Trust Company, whom it
has appointed as global sub-custodian.
Registrar
The Company entered into a Registrar Agreement dated 26 September 2018 with
Link Asset Services to provide registrar services in relation to the transfer
and settlement of shares. Under the agreement, the Registrar is entitled to a
fee calculated on the basis of the number of Shareholders and the number of
transfers processed (exclusive of any VAT). In addition, the Registrar is
entitled to certain other fees for ad hoc services rendered from time to time.
The Registrar Agreement is for an initial period of one year from the date of
Initial Admission and thereafter shall automatically renew for successive
periods of 12 months unless or until terminated by either party (a) at the end
of the initial period, provided written notice is given to the other party at
least 6 months prior to the end of the initial period or (b) at the end of any
successive 12-month period, provided written notice is given to the other
party at least six months prior to the end of such successive 12-month period.
Company Secretary
The Company entered into a Company Secretarial Agreement dated 26 September
2018 appointing Link Asset Services as Company Secretary to provide the
company secretarial functions required by the Companies Act.
Under the terms of the Company Secretarial Services Agreement, the aggregate
fees payable to Link Asset Services are currently GBP61,920 per annum. The
Company Secretarial Agreement is for an initial period of 12 months and
thereafter shall automatically renew for successive periods of 12 months
unless or until terminated by either party (a) at the end of the initial
period, provided written notice is given to the other party at least six
months prior to the end of the initial period or (b) at the end of any
successive 12-month period, provided written notice is given to the other
party at least six months prior to the end of such successive 12-month period.
Section 172 Statement
Overview
The Directors' overarching duty is to act in good faith and in a way that is
the most likely to promote the success of the Company as set out in Section
172 of the Companies Act 2006. In doing so, Directors must take into
consideration the interests of the various stakeholders of the Company and the
impact the Company has on the community and the environment; take a long-term
view on consequences of the decisions they make; and aim to maintain a
reputation for high standards of business conduct and fair treatment between
the members of the Company.
Fulfilling this duty naturally supports the Company in achieving its
investment objective and helps to ensure that all decisions are made in a
responsible and sustainable way. In accordance with the requirements of the
Companies (Miscellaneous Reporting) Regulations 2018, the Company explains how
the Directors have discharged their duty under Section 172 below.
To ensure that the Directors are aware of and understand their duties, they
are provided with the relevant information as part of their induction, as well
as receiving regular and ongoing updates and training on the relevant matters.
They also have continued access to the advice and services of the Company
Secretary and, when deemed necessary, the Directors can seek independent
professional advice. The schedule of Matters Reserved for the Board, as well
as the Terms of Reference of its committees are reviewed on at least an annual
basis and further describe the Directors' responsibilities and obligations,
and include any statutory and regulatory duties. The Audit Committee has the
responsibility for the ongoing review of the Company's risk management systems
and internal controls and, to the extent that they are applicable, risks
related to the matters set out in Section 172 are included in the Company's
risk register and are subject to periodic and regular reviews and monitoring.
Decision-making
The Board considers the impact that any material decision will have on all
relevant stakeholders to ensure that it is making a decision that promotes the
long-term success of the Company, whether this be in relation to dividends,
new investment opportunities, potential future fundraisings etc.
Stakeholders
The Board seeks to understand the needs and priorities of the Company's
stakeholders and these are taken into account during all its discussions and
as part of its decision-making. The Board has considered which parties should
be deemed to be stakeholders of the Company. As the Company is an externally
managed investment company and does not have any employees or customers, its
key stakeholders comprise its Shareholders, regulators (including service
party regulators) and service providers. The section below discusses why these
stakeholders are considered of importance to the Company and the actions taken
to ensure that their interests are taken into account.
Importance Board engagement
Shareholders
Continued Shareholder support The Company has over 120
and engagement are critical to Shareholders, including
the continued existence of the institutional and retail
Company and the successful investors. The Board is
delivery of its long-term committed to maintaining open
strategy. channels of communication and
to engage with Shareholders in
a manner they find most
meaningful in order to gain an
understanding of their views.
These include the channels
below.
Before the Company's fifth
annual general meeting in 2024,
the Board will formulate and
submit to Shareholders proposals
(which may constitute a tender
offer or other method of
distribution) to provide · AGM: the Company welcomes
Shareholders with an opportunity and encourages attendance and
to realise the value of their participation from
Ordinary Shares at the then Shareholders at its first and
prevailing NAV per Ordinary subsequent AGMs. Shareholders
Share less costs. In all will have the opportunity to
circumstances, the Board will meet the Directors and
seek to balance the interests of Investment Manager and to
both continuing Shareholders and address questions to them
those electing to realise their directly. The Investment
investment. Manager will attend the AGM
and will provide a
presentation on the Company's
performance and the future
outlook. The Company values
any feedback and questions it
may receive from Shareholders
ahead of and during the AGM
and will take action or make
changes, when and as
appropriate.
· Publications: the Annual
Report and interim results
are made available on the
Company's website and the
Annual Report is circulated
to Shareholders. This
information is supplemented
by the monthly calculation
and publication of the NAV
per share which is announced
via the regulatory new
service of the London Stock
Exchange. In addition, a
monthly factsheet and/or a
quarterly newsletter is
published by the Investment
Manager on the Company's
website. Feedback and/or
questions that the Company
receives from Shareholders
help the Company evolve its
reporting, aiming to render
the reports and updates
transparent and
understandable. The Board
decided to seek Shareholder
approval at the forthcoming
AGM to take advantage of the
provisions of the Companies
Act 2006 to allow electronic
communications with its
Shareholders, including
making important documents
available through its
website. This would reduce
the amount of printing the
Company needs to undertake,
which will have a positive
impact on the environment.
· Shareholder meetings:
unlike trading companies one-
to-one Shareholder meetings
take the form of a meeting
with the Investment Manager
rather than members of the
Board. Feedback from all
substantive meetings between
the Investment Manager and
Shareholders is shared with
the Board. The Chairman, the
Chairman of the Audit
Committee or other members of
the Board are available to
meet with Shareholders to
understand their views on
governance and the Company's
performance where they wish
to do so. With assistance
from the Investment Manager,
the Chairman seeks meetings
with Shareholders who might
wish to meet with him.
· Shareholder concerns: in
the event that Shareholders
wish to raise issues or
concerns with the Board, they
are welcome to do so at any
time by writing to the
Chairman at the registered
office. The Senior
Independent Director is also
available to Shareholders if
they have concerns that
contact through the normal
channel of the Chairman has
failed to resolve or for
which such contact is
inappropriate.
· Investor relations updates:
at every Board meeting, the
Directors receive updates
from the Company's broker on
the share trading activity,
share price performance and
any Shareholders' feedback,
as well as an update from the
Investment Manager.
Other stakeholders
The Investment Manager
Holding the Company's shares Maintaining a close and
offers investors a liquid constructive working
investment vehicle through which relationship with the
they can obtain exposure to the Investment Manager is crucial,
Company's diversified portfolio. as the Board and the Investment
The Investment Manager's Manager both aim to continue to
performance is critical for the achieve consistent, long-term
Company to successfully deliver returns in line with the
its investment strategy and meet Company's investment objective.
its objective. Important components in the
collaboration with the
Investment Manager,
representative of the Company's
culture include those listed
below.
· Encouraging open, honest
and collaborative discussions
at all levels, allowing time
and space for original and
innovative thinking.
· Ensuring that the impact on
the Investment Manager is
fully considered and
understood before any
business decision is made.
· Ensuring that any potential
conflicts of interest are
avoided or managed
effectively.
The Board holds detailed and
intensive discussions with the
investment manager on all key
strategic and operational
topics on an ongoing basis.
The Administrator, the Company
Secretary, the Registrar, the
Depositary, the Custodian and
the Broker
In order to function as an The Board maintains regular
investment trust with a listing contact with its key external
on the premium segment of the providers and receives regular
official list of the FCA and reporting from them through the
trade on the London Stock Board and committee meetings,
Exchange's (LSE) main market for as well as outside of the
listed securities, relies on a regular meeting cycle. Their
diverse range of reputable advice, as well as their needs
advisors for support in meeting and views are routinely taken
all relevant obligations. into account. The Management
Engagement Committee formally
assesses their performance,
fees and continuing appointment
at least annually to ensure
that the key service providers
continue to function at an
acceptable level and are
appropriately remunerated to
deliver the expected level of
service. The Audit Committee
reviews and evaluates the
control environments in place
at each service provider as
appropriate.
Regulators (including
third-party service party
providers regulators)
The Company can only operate The Company regularly considers
with the approval of its how it meets various regulatory
regulators as its third-party and statutory obligations and
service providers' regulators follows voluntary and best
who have a legitimate interest practice guidance. It also
in how the Company operates in gives full consideration to how
the market and how it treats its any governance decisions it
Shareholders. makes can have an impact on its
stakeholders, both in the
shorter and in the longer term.
The Company's service providers
provide regular reporting to
the Company in respect of their
interaction with the own
respective regulators.
The above mechanisms for engaging with stakeholders are kept under review by
the Directors and will be discussed on a regular basis at Board meetings to
ensure that they remain effective.
Culture
The Directors are of the opinion that establishing and maintaining a healthy
corporate culture amongst the Board and in its interaction with the Investment
Manager, Shareholders and other stakeholders will support the delivery of its
purpose, values and strategy. The Board seeks to promote a culture of
openness, transparency and integrity through ongoing dialogue and engagement
with its stakeholders, principally the Investment Manager.
The Board strives to ensure that its culture is in line with the Company's
purpose, values and strategy.
The Board seeks to appoint appropriate third-party service providers and
evaluates their services on a regular basis. Their ongoing appointments are
not only reflective of their performance by reference to their contractual and
service level obligations, but also take into account the extent to which
their individual corporate cultures align with those of the Company. The Board
considers the culture of the Investment Manager and other stakeholders,
including their policies, practices and behaviour, through regular reporting
from these stakeholders and in particular during the annual review of the
performance and continuing appointment of all service providers.
Employees, human rights and social and community issues
The Board recognises certain requirement under the Companies Act 2006 to
detail information about human rights, employees and community issues,
including information about any policies it has in relation to these matters
and the effectiveness of these policies. These requirements are not in
practice applicable to the Company as it has no employees, all the Directors
are non-executive and it has outsourced all operational functions to
third-party service providers. The Company has therefore not reported further
in respect of these provisions.
Board diversity
As at 31 December 2019, the Board of Directors of the Company comprised three
male Directors and one female Director. The Board acknowledges the benefits of
diversity, including gender diversity, and it remains committed to ensuring
that the Company's Directors bring a wide range of skills, knowledge,
experience, backgrounds and perspectives.
Environmental, social and governance (ESG) issues
The Company has no employees, property or activities other than investments,
so its direct environmental impact is minimal. In carrying out its activities
and in its relationships with service providers and their employees, the
Company aims to conduct itself responsibly, ethically and fairly.
The day-to-day management of the Company's investing activities is delegated
to the Investment Manager.
The Investment Manager has a long-term track record of commitment to
responsible investment principles, and became a signatory to the United
Nations-supported PRI Association ("the PRI"), the world's leading
organisational proponent of responsible investing, more than seven years ago.
By virtue of that status, the Investment Manager has committed itself to
adhering to the following overarching principles in the conduct of its
investment management activities.
Principle 1: We will incorporate ESG issues into investment analysis and
decision-making processes.
Principle 2: We will be active owners and incorporate ESG issues into our
ownership policies and practices.
Principle 3: We will seek appropriate disclosure on ESG issues by the entities
in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles
within the investment industry.
Principle 5: We will work together to enhance our effectiveness in
implementing the Principles.
Principle 6: We will each report on our activities and progress towards
implementing the Principles.
As a signatory member to the PRI, the Investment Manager is committed to
providing detailed ESG transparency to market participants in relation to its
business activities. The most recent transparency report is available at
https://w [1]ww.unpri.org/ [1]
signatory-directory/mandg-investments/1483.article.
Given its commitment to responsible investment, the Investment Manager has
allocated significant human and financial capital to the implementation of the
PRI principles. More information on the Investment Manager's approach to
responsible investment can be found online at
https://global.mandg.com/our-business/mandginvestments/responsible-investing-a
t-mandg investments. Interested investors are invited to access the Investment
Manager's ESG resources either through its website or through the Company's
Directors as appropriate.
Greenhouse gas emissions
The Company has no greenhouse gas emissions to report from its operations, nor
does it have responsibility for any other emission-producing sources under the
Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.
Modern slavery
The Company, as an investment vehicle, does not provide goods or services in
the normal course of business and does not have customers. The Directors
consider that the Company is thus not required to make a slavery or human
trafficking statement under the Modern Slavery Act 2015. The Board considers
the Company's supply chains, dealing predominantly with professional advisers
and service providers in the financial services industry, to be low risk in
relation to this matter.
Approval
The Strategic Report was approved by the Board at its meeting on 18 February
2020. The Chairman's Statement together with the Investment Manager's Report
form part of this Strategic Report.
David Simpson
Chairman
18 February 2020
Statement of Directors' responsibilities in respect of the Annual Report and
Financial Statements
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law they have elected to prepare the financial
statements in accordance with UK Accounting Standards, including FRS 102 The
Financial Reporting Standard applicable in the UK and Republic of Ireland.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and of the profit or loss of the Company for that
period. In preparing these financial statements, the Directors are required
to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained in the financial
statements;
· assess the Company's ability to continue as a going concern, disclosing,
as applicable, matters related to going concern; and
· use the going concern basis of accounting unless they either intend to
liquidate the Company or to cease operations, or have no realistic
alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are
su?cient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that its financial statements comply with the Companies
Act 2006. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Company and to prevent and detect fraud and other
irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Directors' Remuneration
Report and Corporate Governance Statement that complies with that law and
those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the UK governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement of the Directors in respect of the annual financial
report
The Directors confirm that to the best of their knowledge:
· the Financial Statements, prepared in accordance with the applicable set
of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit [or loss] of the company taken as
a whole; and
· the Strategic Report/Directors' Report include a fair review of the
development and performance of the business and the position of the issuer,
together with a description of the principal risks and uncertainties that
they face.
The 2018 UK Corporate Governance Code also requires Directors to ensure that
the Annual Report and Financial Statements are fair, balanced and
understandable. In order to reach a conclusion on this matter, the Board has
requested that the Audit Committee advise on whether it considers that the
Annual Report and Financial Statements fulfil these requirements. The process
by which the Audit Committee has reached these conclusions is set out in the
Corporate Governance Statement in the full Annual Report. As a result, the
Board has concluded that the Annual Report and Financial Statements for the
period ended 31 December 2019, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to
assess the Company's position, performance, business model and strategy.
On behalf of the Board
David Simpson
Chairman
18 February 2020
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the period from 17 July 2018 to 31 December 2019 but is
derived from those accounts. The statutory accounts will be delivered to the
Registrar of Companies in due course. The Auditors have reported on those
accounts; their report was (i) unqualified, (ii) did not include a reference
to any matters to which the Auditors drew attention by way of emphasis without
qualifying their report and (iii) did not contain a statement under Section
498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can
be found in the Company's full Annual Report and Accounts at
www.mandg.co.uk/creditincomeinvestmenttrust
Income statement
Period from 17 July 2018
to 31 December 2019
Revenue Capital Total
Note GBP'000 GBP'000 GBP'000
Net gains on investments 8 - 3,593 3,593
Net losses on derivatives 8 - (221) (221)
Net currency losses (19) (78) (97)
Income 3 4,530 - 4,530
Investment management fee 4 (678) - (678)
Other expenses 5 (706) - (706)
Net return on ordinary 3,127 3,294 6,421
activities before taxation
Taxation on ordinary activities 7 (1) - (1)
Net return attributable to 3,126 3,294 6,420
Ordinary Shareholders after
taxation
Net return per Ordinary Share 2 2.55p 2.69p 5.24p
(basic and diluted) [a]
[a] Return figures have been calculated using weighted average shares for the
period 14 November 2018 to 31 December 2019.
The total column of this statement represents the Company's profit and loss
account. The "Revenue" and "Capital" columns represent supplementary
information provided under guidance issued by the Association of Investment
Companies.
All revenue and capital items in the above statement derive from continuing
operations.
The Company has no other comprehensive income and therefore the net return on
ordinary activities after taxation is also the total comprehensive income for
the period.
The notes below form an integral part of these Financial Statements.
Statement of financial position
as at 31 December 2019
Note GBP'000 GBP'000
Non-current assets
Investments at fair value 8 126,793
through profit or loss
Current assets
Derivative financial 8 523
assets held at fair value
through profit or loss
Other receivables 9 1,092
Cash and Cash Equivalents 9 4,877
6,492
Current liabilities
Other payables 9 (1,053)
Total current liabilities (1,053)
Net current assets 5,439
Total assets less current 132,232
liabilities
Net assets 132,232
Capital and reserves
Called up share capital 10 1,300
Share premium 28,229
Special distributable 11 99,000
reserve
Capital reserve 10 1,968
Revenue reserve 1,735
Total shareholders' funds 132,232
Net Asset Value per 2 101.72p
Ordinary Share (basic and
diluted)
The notes below form an integral part of these Financial Statements.
Approved and authorised for issue by the Board of Directors on 18 February
2020 and signed on its behalf by:
David Simpson
Chairman
Company registration number: 11469317
Statement of changes in equity
For the period from 17 July 2018 to 31 December 2019
Called Share Special Capital Revenue Total
up premi distrib reserve reserve
Ordinar um utable
y Share reserve
capital
Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Balance at - - - - - -
17 July 2018
Initial - (1,59 - - - (1,592
public 2) )
offering
cost
Ordinary 10 1,300 128,8 - - - 130,13
Shares 39 9
issued
during the
period
Cancellation - (99,0 99,000 - - -
of share 00)
premium
Cancellation - (18) - - - (18)
of share
premium
costs
Net return - - - 3,294 3,126 6,420
attributable
to
shareholders
Dividends 6 - - - (1,326) (1,391) (2,717
paid )
Balance at 1,300 28,22 99,000 1,968 1,735 132,23
31 December 9 2
2019
Cash flow statement
as at 31 December 2019
Note GBP'000
Cash flows from operating activities
Net profit before taxation 6,421
Adjustments for:
Gains on investments 8 (3,593)
Losses on derivatives 8 221
Increase in other receivables (1,092)
Increase in other payables 1,053
Overseas withholding tax suffered (1)
Purchases of investments 8 (167,659)
Sales of investments 8 43,715
Net cash inflow from operating (120,935)
activities
Financing activities
Issue of Ordinary Shares 130,139
Initial public offering costs (1,592)
Cancellation of share premium costs (18)
Ordinary dividend paid 6 (1,391)
Interest distribution paid 6 (1,326)
Net cash inflow from financing 125,812
activities
Increase in Cash and Cash 9 4,877
Equivalents
Cash and Cash Equivalents at the -
start of the period
4,877
Increase in Cash and Cash
Equivalents as above
Cash and Cash Equivalents at the end 9 4,877
of the period
Notes to the Financial Statements
1) Significant accounting policies
The Company is a public limited company incorporated in England and Wales,
with the registered office of Beaufort House, 51 New North Road, Exeter EX4
4EP.
The significant accounting policies, as set out below, have all been applied
consistently throughout the period from 17 July 2018 (the date of
incorporation) to 31 December 2019.
a) Basis of accounting
The Financial Statements have been prepared on a going concern basis under the
historical cost convention, modified to include certain items at fair value,
and in accordance with United Kingdom Accounting Standards, including FRS 102
"The Financial Reporting Standard applicable in the UK and Republic of
Ireland" (United Kingdom Generally Accepted Accounting Practice) and the
Statement of Recommended Practice issued by the Association of Investment
Companies ('SORP') in October 2019 "Financial Statements of Investment Trust
Companies and Venture Capital Trusts
The functional and presentational currency of the Company is pounds sterling
because that is the currency of the primary economic environment in which the
Company operates.
All values are recorded to nearest thousands, unless otherwise stated.
b) Financial instruments
Financial assets and financial liabilities are recognised when the Company
becomes a party to the contractual provisions of the instrument.
Financial liabilities are classified according to the substance of the
contractual arrangements entered into.
Financial assets and liabilities
All financial assets and liabilities are classified as at fair value through
profit or loss (FVTPL), and are initially measured at fair value (which is
normally the transaction price excluding transaction costs), unless the
arrangement constitutes a financing transaction. If an arrangement constitutes
a financing transaction, the financial asset or financial liability is
measured at the present value of the future payments discounted at a market
rate of interest for a similar Debt Instrument.
Changes in the fair value of financial instruments held at FVTPL and gains and
losses on disposal are recognised as capital.
Financial assets and liabilities are offset in the statement of financial
position only when there exists a legally enforceable right to set off the
recognised amounts and the Company intends either to settle on a net basis, or
to realise the asset and settle the liability simultaneously.
With the exception of some hedging instruments, other Debt Instruments not
meeting conditions of being 'basic' financial instruments are measured at
FVTPL.
Commitments to make and receive loans that meet the conditions mentioned above
are measured at cost (which may be nil) less any impairment. They are recorded
and disclosed at the date of the legal commitment and recognised upon funding.
Financial assets are derecognised only when (a) the contractual rights to the
cash flows from the financial asset expire or are settled, (b) the Company
transfers to another party substantially all of the risks and rewards of
ownership of the financial asset, or (c) the Company, despite having retained
some, but not all, significant risks and rewards of ownership, has transferred
control of the asset to another party.
Financial liabilities are derecognised only when the obligation specified in
the contract is discharged, cancelled or expires.
Derivative financial instruments
Derivatives are initially recognised at fair value at the date a derivative
contract is entered into and are subsequently remeasured to their fair value
at each reporting date. The resulting gain or loss is recognised in the Income
Statement. Derivative returns are recognised as revenue or capital depending
on their nature.
Fair value measurement
The best evidence of fair value is a quoted price for an identical asset in an
active market. When quoted prices are unavailable, the price of a recent
transaction for an identical asset provides evidence of fair value as long as
there has not been a significant change in economic circumstances or a
significant lapse of time since the transaction took place. If the market is
not active and recent transactions of an identical asset on their own are not
a good estimate of fair value, the fair value is estimated by using a
valuation technique.
c) Impairment of assets
Assets, other than those measured at fair value, are assessed for indicators
of impairment at each balance sheet date. If there is objective evidence of
impairment, an impairment loss is recognised in profit or loss as described
below.
Non-financial assets
An asset is impaired where there is objective evidence that, as a result of
one or more events that occurred after initial recognition, the estimated
recoverable value of the asset has been reduced. The recoverable amount of an
asset is the higher of its fair value less costs to sell and its value in use.
Where indicators exist for a decrease in impairment loss previously recognised
for assets other than goodwill, the prior impairment loss is tested to
determine reversal. An impairment loss is reversed on an individual impaired
asset to the extent that the revised recoverable value does not lead to a
revised carrying amount higher than the carrying value had no impairment been
recognised.
d) Tax
Current tax is accounted for at the appropriate rate of corporation tax. The
tax accounting treatment follows the principal amounts involved.
Deferred tax is recognised in respect of all timing differences between the
treatment of certain items for tax and accounting purposes that have
originated but not reversed at the balance sheet date.
Due to the Company's status as an investment trust company and the intention
to continue meeting the conditions required to obtain approval in the
foreseeable future, the Company has not provided deferred tax on any capital
gains and losses arising on the revaluation or disposal of investments.
e) Income and expenses
Interest from Debt Instruments is recognised as revenue by reference to the
coupon payable adjusted to spread any premium or discount on purchase over its
remaining life. Other interest income is recognised as revenue on an accruals
basis. Income from investment funds is recognised in revenue when the right to
receive it is established. Expenses not incidental to the purchase or sale of
investments are recognised on an accruals basis and charged to revenue. Rebate
of management fees incurred by investment funds managed by M&G Alternatives
Investment Management Limited are recognised on an accrual basis as revenue or
capital in accordance with the underlying scheme's distribution policy.
f) Foreign currency
Transactions in foreign currencies are recorded at the rate of exchange at the
date of the transaction. Assets and liabilities denominated in foreign
currencies at the balance sheet date are reported at the rates of exchange
prevailing at that date.
Other exchange differences are recognised in profit or loss in the period in
which they arise.
All gains and losses on the translation of foreign currency are recognised as
revenue or capital in the Income Statement depending on the underlying nature
of the transactions.
g) Cash and Cash Equivalents
Cash and Cash Equivalents are defined as cash and short-term, highly liquid
investments that are readily convertible to known amounts of cash and that are
subject to insignificant risk of change in value.
They also include unfunded commitments on investments not classified under
financial assets.
h) Share capital and reserves
Called up ordinary share capital
Called up ordinary share capital represents the nominal value of Ordinary
Shares issued.
Share premium
Share premium represents the excess over nominal value of shares issued, net
of expenses of the share issue, except where amounts have been cancelled in
accordance with section 610 of the Companies Act 2006 and transferred to
special distributable reserve.
Special distributable reserve
Share premium of GBP99,000,001 was cancelled on 12 February 2019 and transferred
to the special distributable reserve, in accordance with section 610 of the
Companies Act 2006. The Company may, at the discretion of the Board, pay all
or part of any future dividends out of this special distributable reserve,
taking into account the Company's investment objective.
Capital reserve
Capital reserve reflects any:
· gains or losses on the disposal of investments;
· exchange differences of a capital nature;
· increases and decreases in the fair value of investments held at the
period end.
This reserve can also be used for distributions by way of a dividend.
Revenue reserve
Revenue reserve reflects all income and expenditure which are recognised in
the revenue column of the Income Statement and is distributable by way of
dividends.
i) Investment management fee
Investment management fees are recognised on an accruals basis and are charged
to revenue.
j) Accounting judgements, estimates and assumptions
The preparation of the financial statements requires the Directors to make
judgements, estimates and assumptions that affect the amounts recognised in
the financial statements. However, uncertainty about these judgements,
assumptions and estimates could result in outcomes that could require a
material adjustment to the carrying amount of the asset or liability affected
in future periods.
Whilst estimates are based on best judgement using information and financial
data available the actual outcome may differ from these estimates.
No significant judgements, estimates or assumptions have been required in the
preparation of the accounts for the current period..
2 Returns and net asset value (NAV)
period from
17 July 2018 to
31 December 2019
Revenue return
Revenue return attributable to Ordinary GBP3,126
Shareholders (GBP'000)
Weighted average number of shares in issue 122,606,191
during the period [a]
Revenue return per Ordinary Share (basic and 2.55p
diluted)
Shares in issue at period end 130,000,001
Revenue available for dividend 2.40p
Capital return
Capital return attributable to Ordinary GBP3,294
Shareholders (GBP'000)
Weighted average number of shares in issue 122,606,191
during the period [a]
Capital return per Ordinary Share (basic and 2.69p
diluted)
Net return
Net return per Ordinary Share (basic and 5.24p
diluted)
NAV per Ordinary Share
Net assets attributable to Ordinary GBP132,232
Shareholders (GBP'000)
Number of shares in issue at period end 130,000,001
Par value of shares in issue (GBP'000) 1,300
NAV per Ordinary Share 101.72p
a) Return figures have been calculated using
weighted average shares for the period 14
November 2018 (date of IPO) to 31 December
2019.
3) Income
period from
17 July 2018 to
31 December 2019
GBP'000
Income from investments
Interest income from Debt Instruments 3,865
Distributions from investment funds 444
Management fee rebate 74
4,383
Other income
Interest from Cash and Cash Equivalents 147
4,530
4) Investment management fee
period from
17 July 2018 to
31 December 2019
GBP'000
Investment management fee 678
5 Other expenses
period from
17 July 2018 to
31 December 2019
GBP'000
Directors' fees 128
Legal fees 20
Printing and postage 23
Registrar's and secretarial fees 111
Admin fees 88
Broker fees 68
LSE block listing fee 78
Other 111
627
Auditors' remuneration:
- Audit services 58
- Non-audit services [a] 21
706
In addition, non-audit service fees of GBP81,600 (including VAT) were paid to
the auditor in the period in relation to the reporting accountant role for the
Company's IPO, recognised in the share premium account.
6 Dividends
period from
17 July 2018 to
31 December 2019
GBP'000
Revenue
Period ended 31 December 2019: first interim 1,391
interest distribution of 1.07p
1,391
Capital
Period ended 31 December 2019: first interim 1,326
dividend of 1.02p
1,326
Set out below are the total dividends in respect of the period, which forms
the basis on which the requirements of Sections 1158-1159 of the Corporation
Tax Act 2010 are considered.
period from
17 July 2018 to
31 December 2019
GBP'000
First interim interest distribution of 1.07p
for the period ended 31 December 2019
1,391
First interim dividend of 1.02p for the period 1,326
ended 31 December 2019
2,717
On 29 January 2020, the Board declared a second interim dividend of 1.65p per
Ordinary Share (1.33p as an interest distribution and 0.32p as an ordinary
dividend) totalling GBP2,145,000 which will be paid on 28 February 2020 to
Ordinary Shareholders on the register on 7 February 2020. The ex- dividend
date was 6 February 2020.
The second interim dividend has not been included as a liability in these
financial statements.
7 Taxation on ordinary activities
Revenue Capital period from
GBP'000 GBP'000 17 July 2018 to
31 December 2019
GBP'000
Foreign tax 1 - 1
The corporation tax rate was 19.0%. The tax charge for the year differs from
the charge resulting from applying the standard rate of corporation tax in the
UK for an investment trust company. The differences are explained below:
Revenue Capital period from
GBP'000 GBP'000 17 July 2018 to
31 December 2019
GBP'000
Net return on ordinary 3,127 3,294 6,421
activities before taxation
Corporation tax at standard 594 626 1,220
rate of 19.0%
Effects of:
Net gains on investments - (683) (683)
Net losses on derivatives - 42 43
Irrecoverable overseas tax 1 - 1
Tax deductible interest (594) - (594)
distributions
Net foreign currencies losses - 15 15
Total tax charge 1 - 1
As at 31 December 2019, the Company had unutilised management expenses of GBPnil
carried forward. Due to the Company's status as an investment trust and the
intention to continue to meet the conditions required to obtain approval in
the foreseeable future, the Company has not provided deferred tax on capital
gains and losses arising on the revaluation or disposal of investments.
8 Investments held at fair value through profit or loss (FVTPL)
as at 31 December 2019
GBP'000
Opening valuation -
Analysis of transactions made during the
period
Purchases at cost 167,659
Sale proceeds received (43,715)
Gains on investments 3,372
Closing valuation 127,316
Closing cost 125,083
Closing investment holding gains 2,233
Closing valuation 127,316
The company received GBP43,715,000 from investments sold in the period. The book
cost of these investments when they were purchased was GBP41,832,000. These
investments have been revalued over time and until they were sold any
unrealised gains/losses were included in the fair value of the investments.
as at 31 December
2019
GBP'000
Gains on investments
Net realised gains on disposal of 3,593
investments
Net losses on derivatives (221)
Gains on investments 3,372
as at 31 December 2019
GBP'000
Closing valuation
Investments at fair value through profit 126,793
or loss
Derivative financial assets held at fair 523
value through profit or loss
Closing valuation 127,316
9) Other receivables, Cash and Cash Equivalents and other payables
as at 31 December 2019
GBP'000
Other receivables
Accrued income 1,005
Prepaid expenses 13
Management fee rebate 74
Total 1,092
Cash and Cash Equivalents
Cash at bank 2,411
Amounts held at futures clearing houses 60
Cash on deposit 2,406
Total 4,877
Other payables
Expenses payable 308
Management fee payable 678
Other payables 67
Total 1,053
10 Called up share capital
Number of as at 31 December 2019
shares GBP'000
Ordinary Shares of 1p -
Ordinary Shares in issue at - -
the beginning of the period
Ordinary Shares issued during 130,000,001 1,300
the period
Ordinary Shares in issue at 130,000,001 1,300
the at the
end of the period
The analysis of the capital reserve is as follows:
Realised Investment Total
capital capital
reserve reserve
holding
gains
GBP'000 GBP'000 GBP'000
Gains on realisation of investments 1,139 - 1,139
at fair value
Realised currency losses during the (78) - (78)
period
Unrealised gains - 2,233 2,233
Dividends paid (1,326) - (1,326)
As at 31 December 2019 (265) 2,233 1,968
The above split in capital reserve is shown in accordance with provisions of
the Statement of Recommended Practice 'Financial Statements of Investment
Trust Companies and Venture Capital Trusts', 2019.
11 Special distributable reserve
The share premium of GBP99,000,001 was cancelled on 12 February 2019 and
transferred to the special distributable reserve, in accordance with section
610 of the Companies Act 2006. The Company may, at the discretion of the
Board, pay all or part of any future dividends out of this special
distributable reserve, taking into account the Company's investment objective.
12 Related party transactions
M&G Alternatives Investment Management Limited, as Investment Manager, is a
related party to the Company. The management fee payable to the Investment
Manager for the period is disclosed in the income statement, in note 4 and
amounts outstanding at the period end are shown in note 9.
The Company holds an investment in M&G European Loan Fund which is managed by
M&G Investment Management Limited. At the period end, this was valued at
GBP14,018,558 and represented 10.81% of the Company's investment portfolio.
The Directors of the Company are related parties. The details of the fees
payable to Directors and details of Directors' shareholdings are given in the
Directors' Remuneration Report in the full Annual Report and Accounts. The
balance of fees due to the Directors at the period end was GBP30,118.
13 Financial instruments
In pursuing the Company's objectives, the Company accepts market price risk
and interest rate risk, in relation to the portfolio of investments. Since the
Company's investment objectives are to deliver returns over the long term,
transactions with the sole intention of realising short-term returns are not
undertaken.
The quantitative data disclosed is representative of the Company's exposure to
risk throughout the period.
The AIFM attempts to gain the best and most consistent returns for clients
via:
· a bottom-up approach, centred around a detailed evaluation of individual
investments; and
· diversification across issuer to minimise the impact of default.
Portfolio management decisions are based on an in-house credit assessment and
instrument rating which is carried out by the AIFM's credit analysts.
Market risk
Market risk embodies the potential for both losses and gains and includes
foreign currency risk, interest rate risk and price risk, which are discussed
in detail under separate headings within this note.
Market risk arises mainly from uncertainty about future values of financial
instruments influenced by other price, currency and interest rate movements.
It represents the potential loss the Company may suffer through holding market
positions in investments in the face of market movements.
Management of market risk
The Board meets formally at least four times a year with the Investment
Manager to review, inter alia, the Company's strategy and performance, the
composition of the investment portfolio and the management of risk. The
investment management team has responsibility for monitoring the portfolio,
which is selected in accordance with the Company's investment objective and
seeks to ensure that any investments meet an acceptable risk/reward profile.
Market risk arising from foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in foreign exchange
rates.
The fair values of the Company's monetary items which have foreign currency
exposure at 31 December 2019 are shown below.
Euro 2019
GBP'000 US dollar
GBP'000 GBP'000
Debtors 80 8
Investments 9,434 6,582
Total foreign currency exposure on net monetary 9,514 6,590
items
The Company is exposed to risks that the exchange rate of its reporting
currencies relative to other currencies may change in a manner which has an
adverse effect on the value of the portion of the Company's assets which are
denominated in currencies other than their own currencies. Typically the fund
manager will substantially hedge these risks using foreign exchange forward
contracts.
The following table illustrates the sensitivity of revenue and capital return
on ordinary activities after tax and net assets attributable to Shareholders
to an increase or decrease of 5% in exchange rates. A 5% increase in the value
of the fund's currency exposure would have the effect of increasing the return
and net assets by GBP797,000. A 5% decrease would have an equal and opposite
effect.
Increase in exchange Decrease in exchange
rates rates 2019
2019 GBP'000
GBP'000
Income statement
Revenue return (4) 4
Capital return 801 (801)
Total change to net 797 (797)
return on ordinary
activities after tax
Change to net assets 797 (797)
attributable to
shareholders
Market risk arising from interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in market interest
rates.
The Company's investments may be subject to interest rate risk. When interest
rates decline, the value of fixed rate obligations can be expected to rise,
and conversely when interest rates rise, the value of fixed-rate obligations
can be expected to decline. In general, if prevailing interest rates fall
significantly below the interest rates on any Debt Instruments held by the
Company, such investments are more likely to be the subject of prepayments
than if prevailing rates remain at or above the rates borne by such
investments.
Since the global financial crash there has been a sustained period of very low
levels of central bank set interest rates. It is possible that central banks
will raise their interest rates in the future. For investments that have a
fixed rate of return, any such interest rate rises may negatively impact the
returns on the investments and the returns realised by the investors.
The following table illustrates the sensitivity of revenue and capital return
on ordinary activities after tax and net assets attributable to Shareholders
to an increase or decrease of 2% in interest rates. As at 31 December 2019,
the prevailing base rate was 0.75%. The decrease in interest rates illustrated
below of 2% is reasonably possible based on observation of market conditions
and historical trends. The sensitivity analysis is based on the Company's bond
holdings at each reporting date, with all other variables held constant.
Decrease in Increase in interest
interest rates 2019
rates
GBP'000
2019
GBP'000
Income statement
Revenue return 13 (13)
Capital return 2,633 (2,633)
Total change to net 2,647 (2,647)
return on ordinary
activities after tax
Change to net assets 2,647 (2,647)
attributable to
shareholders
Market risk arising from other price risk
Market price risk includes changes in market prices, other than those arising
from interest rate risk, which may affect the value of investments.
The following table illustrates the sensitivity of revenue and capital return
on ordinary activities after tax and net assets attributable to shareholders
to an increase or decrease of 10% in the fair value of the Company's
investments. This level of change is considered to be reasonably possible
based on observation of market conditions and historical trends. The
sensitivity analysis is based on the Company's investments at each reporting
date, with all other variables held constant.
Increase in Decrease in fair value
fair value 2019
2019 GBP'000
GBP'000
Income statement
Revenue return (63) 63
Capital return 12,679 (12,679)
Total change to net return on 12,616 (12,616)
ordinary activities after tax
Change to net assets 12,616 (12,616)
attributable to Shareholders
Liquidity risk
The Company invests in illiquid public and private debt instruments. Such
investments may be difficult to value or realise (if at all) and therefore the
market price that is achievable for such investments might be lower than the
valuation of these assets and as reflected in the Company's published NAV per
Ordinary Share.
The contractual maturities of the financial liabilities at the period end,
based on the earliest date on which payment can be required are as follows:
Three months or less Total
2019 2019
GBP'000 GBP'000
Creditors: amounts falling due within
one year
Other creditors 1,053 1,053
1,053 1,053
Credit risk
Credit risk is the risk that one party to a financial instrument or contract
will cause a financial loss for the other party by failing to discharge an
obligation. In the case of invested assets this is the potential for the
reduction in the value of investments which relates to the risk of an issuer
being unable to meet its obligations, whilst for trading activities this
relates to the risk that the counterparty to any contract the firm enters into
being unable to meet their obligations causing loss.
The Investment Manager maintains a credit risk policy and standards which set
out the assessment and measurement of credit risk, compliance with which is
monitored, and exposures and breaches are reported daily by the risk team. The
policy is reviewed on an annual basis to ensure that it remains fit for
purpose and relevant to changes in the risk environment.
Investment mandates specify explicitly the counterparty risk appetite for cash
on deposit, foreign exchange and OTC trading whilst other counterparty risk is
taken for the purposes of efficient portfolio management and reduction in
risk.
Management of the risk is undertaken in the following way:
To mitigate this risk the AIFM follows the below process for private asset
investments and monitoring.
· Preference for 'high-quality' rated counterparties, mainly banks with
short-term A1/P1 ratings and banks rated A or better.
· Limited exposure to each counterparty to diversify risk.
· Collateral taken from counterparties and posted against their default
where appropriate.
· Regular monitoring of counterparty rating.
· Capability to rapidly reduce exposure on adverse market intelligence.
· Trading on Delivery Versus Payment (DVP) basis.
Credit risk exposure
The following amounts shown in the statement of financial position, represent
the maximum exposure to credit risk at the period end.
Balance Maximum
sheet exposure
2019 2019
GBP'000 GBP'000
Fixed assets
Investments held at fair value through profit 126,793 126,793
or loss
Current assets
Other receivables 1,092 2,222
Cash and Cash Equivalents 4,877 38,966
Cash at bank and in hand 132,762 167,981
No debtors are past their due date and none have been written down or deemed
to be impaired.
Fair values of financial assets and financial liabilities
All financial assets and liabilities are either carried at fair value or the
amount in the statement of financial position is a reasonable approximation of
fair value.
14 Fair value hierarchy
Under FRS 102 an entity is required to classify fair value measurements using
a fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The fair value hierarchy shall have the levels stated
below.
· Level 1: quoted prices (unadjusted) in active markets for identical assets
or liabilities.
· Level 2: other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayments, credit risk, spread
premium, credit ratings etc).
· Level 3: significant unobservable inputs (including the Company's own
assumptions in determining the fair value of investments, discounted
cashflow model or single broker quote).
The level in the fair value hierarchy within which the fair value measurement
is categorised in its entirety is determined on the basis of the lowest level
input that is significant to the fair value measurement in its entirety. For
this purpose, the significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses observable
inputs that require significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of a
particular input to the fair value measurement in its entirety requires
judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant
judgement by the Company. The Company considers observable data to be that
market data that is readily available, regularly distributed or updated,
reliable and verifiable, not proprietary and provided by independent sources
that are actively involved in the relevant market.
The financial assets measured at FVTPL are grouped into the fair value
hierarchy as follows:
as at 31 December 2019
Level 1 Level 2 Level 3 Total
GBP'000 GBP'000 GBP'000 GBP'000
Financial assets at FVTPL
Debt Instruments - 96,068 16,706 112,774
Investment in funds - 14,019 - 14,019
Financial liabilities at
FVTPL
Derivatives 154 369 - 523
Net fair value 154 110,456 16,706 127,316
Sensitivity of Level 3 holdings to unobservable inputs
The debt investments within the Company utilise a number of valuation
methodologies such as a discounted cash flow model, which will use the
relevant credit spread and underlying reference instrument to calculate a
discount rate. Unobservable inputs typically include spread premiums and
internal credit ratings.
Some debt instruments are valued at par and are monitored to ensure this
represents fair value for these instruments. On a monthly basis these
instruments are assessed to understand whether there is any evidence of market
price movements, including impairment or any upcoming refinancing.
In addition, some securities are valued at the price of recent investment and
some are priced by a single broker quote, which is typically the traded
broker, who provides an indicative mark.
Please see below breakdown of the fair value Level 3 disclosure table as at 31
December 2019:
Valuation technique Closing fair value
Discounted cashflow model GBP978,824
Single broker GBP3,790,167
Par value GBP10,202,498
Recent transaction price GBP1,734,345
15 Capital commitments
There were outstanding unfunded investment commitments of GBP2,675,000 at the
period end.
GBP'000
Gate 2 1% 04 Jun 2021 275
Gate 1 1% 04 Jun 2022 (Senior) 245
Gate 1 1% 04 Jun 2022 (Junior) 223
Microfinance Enhancement 1% 08 Nov 2024 774
Sonovate Limited 1% 12 Apr 2021 560
Westbourne 2016 1 WR Senior 1% 30 Sep 2023 598
2,675
16 Capital management policies and procedures
The Company's capital management objectives are:
· to ensure that the company will be able to continue as a going concern;
and
· to generate a regular and attractive level of income with low asset value
volatility by investing in a diversified portfolio of public and private
debt instruments.
The capital of the company consists of equity, comprising issued capital,
reserves and retained earnings.
The board monitors and reviews the broad structure of the company's capital on
an ongoing basis. This review includes the nature and planned level of
gearing, which takes account of the Investment Manager's views on the market
and the extent to which revenue in excess of that which is required to be
distributed should be retained.
17 Post period end events
On 29 January 2020 the Board declared a second interim dividend of 1.65p per
share amounting to GBP2,145,000 which will be paid on 28 February 2020 to
Ordinary Shareholders on the register on 7 February 2020.
Company information
Directors (all non-executive)
David Simpson (Chairman)
Richard Boléat (Chairman of the Audit Committee, Senior Independent Director)
Mark Hutchinson
Barbara Powley
AIFM and Investment Manager
M&G Alternatives Investment Management Limited (MAGAIM)
(Authorised and regulated by the Financial Conduct Authority)
10 Fenchurch Avenue, London EC3M 5AG
Website: www.mandg.co.uk
Telephone: +44 (0) 800 390 390
Administrator
State Street Bank and Trust Company
(Authorised and regulated by the Financial Conduct Authority)
20 Churchill Place, London E14 5HJ
Company Secretary and registered office
Link Company Matters Limited
Beaufort House, 51 New North Road, Exeter EX4 4EP
Telephone: 01392 477 500
Broker
Winterflood Securities Limited
(Authorised and regulated by the Financial Conduct Authority)
The Atrium, Cannon Bridge House, 25 Dowgate Hill,
London EC4R 2GA
Solicitors
Gowling WLG (UK) LLP
(Authorised and regulated by the Financial Conduct Authority)
4 More London Riverside, London SE1 2AU
Auditor
Deloitte LLP
Saltire Court, 20 Castle Street, Edinburgh EH1 2DB
Registrar and transfer office
Link Asset Services
Shareholder Services Department
The Registry
34 Beckenham Road, Beckenham, Kent BR3 4TU
Telephone: 0871 664 0300
(calls will cost 12p per minute plus network charges)
Email: enquiries@linkgroup.co.uk
Website: www.linkassetservices.com
Depositary
State Street Trustees Limited
(Authorised and regulated by the Financial Conduct Authority)
20 Churchill Place, London E14 5HJ
Custodian
State Street Bank and Trust Company
20 Churchill Place, London E14 5HJ
Association of Investment Companies (AIC)
The Company is a member of the AIC, which publishes monthly statistical
information in respect of member companies. The AIC can be contacted on 020
7282 5555, enquiries@theaic.co.uk or visit the website: www.theaic.co.uk
Company website
www.mandg.co.uk/creditincomeinvestmenttrust
Glossary
Asset: Anything having commercial or exchange value that is owned by a
business, institution or individual.
Asset Backed Security (ABS): A security whose income payments and value are
derived from and collateralised by a specified pool of underlying assets.
Asset class: Category of assets, such as cash, company shares, fixed income
securities and their sub-categories, as well as tangible assets such as real
estate.
Association of Investment Companies (AIC): The UK trade body that represents
investment managers. It works with investment managers, liaising with
government on matters of taxation and regulation, and also aims to help
investors understand the industry and the investment options available to
them.
Basis points (bps): A common unit of measure for interest rates and other
percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%,
or 0.0001, and is used to denote the percentage change in a financial
instrument.
Bond: A loan in the form of a security, usually issued by a government or
company, which normally pays a fixed rate of interest over a given time
period, at the end of which the initial amount borrowed is repaid.
Callable bond: A bond that can be redeemed (in other words, called) by the
issuer before its maturity date. The price at which the issuer buys back the
bond is normally higher than its issue price. A bond is usually called when
interest rates fall, so that the issuer can refinance its debt at the new,
lower interest rates.
Capital: Refers to the financial assets, or resources, that a company has to
fund its business operations.
Capitalisation: The total market value of all of a company's outstanding
shares.
CTA: Corporation Tax Act.
Closed-ended: A term used to describe an investment company whose capital is
fixed and whose shares are not generally redeemable at the option of a holder.
Comparative sector: A group of investment companies with similar investment
objectives and/or types of investment, as classified by bodies such as the AIC
or Morningstar(TM). Sector definitions are mostly based on the main assets an
investment company should invest in, and may also have a geographic focus.
Sectors can be the basis for comparing the different characteristics of
similar investment companies, such as their performance or charging structure.
Consumer Prices Index (CPI): An index used to measure inflation, which is the
rate of change in prices for a basket of goods and services. The contents of
the basket are meant to be representative of products and services we
typically spend our money on.
Convertible bonds: Fixed income securities that can be exchanged for
predetermined amounts of company shares at certain times during their life.
Corporate bonds: Fixed income securities issued by a company. They are also
known as bonds and can offer higher interest payments than bonds issued by
governments as they are often considered more risky.
Credit: The borrowing capacity of an individual, company or government. More
narrowly, the term is often used as a synonym for fixed income securities
issued by companies.
Credit default swaps (CDS): Are a type of derivative, namely financial
instruments whose value, and price, are dependent on one or more underlying
assets. CDS are insurance-like contracts that allow investors to transfer the
risk of a fixed income security defaulting to another investor.
Credit rating: An independent assessment of a borrower's ability to repay its
debts. A high rating indicates that the credit rating agency considers the
issuer to be at low risk of default; likewise, a low rating indicates high
risk of default. Standard & Poor's, Fitch and Moody's are the three most
prominent credit rating agencies. Default means that a company or government
is unable to meet interest payments or repay the initial investment amount at
the end of a security's life.
Credit spread: The difference between the yield of a corporate bond, a fixed
income security issued by a company, and a government bond of the same life
span. Yield refers to the income received from an investment and is expressed
as a percentage of the investment's current market value.
Debt instrument: A formal contract that a government, a business or an
individual can use to borrow money. Debt instruments outline the detailed
conditions of the loan, such as the amount and schedule of payment of
interest, the length of time before the principal is paid back, or any
guarantees (collateral) that the borrower offers. Any type of debt can be a
debt instrument -- from bonds and loans to credit cards.
Default: When a borrower does not maintain interest payments or repay the
amount borrowed when due.
Derivatives: Financial instruments whose value, and price, are dependent on
one or more underlying assets. Derivatives can be used to gain exposure to, or
to help protect against, expected changes in the value of the underlying
investments. Derivatives may be traded on a regulated exchange or traded over
the counter.
Developed economy / market: Well-established economies with a high degree of
industrialisation, standard of living and security.
Dividend: Dividends represent a share in the profits of the company and are
paid out to a company's shareholders at set times of the year.
Emerging economy or market: Economies in the process of rapid growth and
increasing industrialisation. Investments in emerging markets are generally
considered to be riskier than those in developed markets.
Episode: A phase during which investors allow their emotions to affect their
decision making, which can cause financial markets to move irrationally.
Equities: Shares of ownership in a company.
Ex-dividend, ex-distribution or XD date: The date on which declared
distributions or dividends officially belong to underlying investors.
Exposure: The proportion of an investment company invested in a particular
share/fixed income security, sector/region, usually expressed as a percentage
of the overall portfolio.
Fixed income security: A loan in the form of a security, usually issued by a
government or company, which normally pays a fixed rate of interest over a
given time period, at the end of which the initial amount borrowed is repaid.
Floating rate notes (FRNs): Securities whose interest (income) payments are
periodically adjusted depending on the change in a reference interest rate.
Gearing: Is a measure of financial leverage that demonstrates the degree to
which the Investment Trust's operations are funded by equity capital versus
creditor financing.
Gilts: Fixed income securities issued by the UK Government.
Government bonds: Fixed income securities issued by governments, that normally
pay a fixed rate of interest over a given time period, at the end of which the
initial investment is repaid.
Hard currency (bonds): Refers to bonds denominated in a highly traded,
relatively stable international currency, rather than in the bond issuer's
local currency. Bonds issued in a more stable hard currency, such as the US
dollar, can be more attractive to investors where there are concerns that the
local currency could lose value over time, eroding the value of bonds and
their income.
Hedging: A method of reducing unnecessary or unintended risk.
High yield bonds: Fixed income securities issued by companies with a low
credit rating from a recognised credit rating agency. They are considered to
be at higher risk of default than better quality, i.e. higher rated fixed
income securities but have the potential for higher rewards. Default means
that a company or government is unable to meet interest payments or repay the
initial investment amount at the end of security's life.
Index: An index represents a particular market or a portion of it, serving as
a performance indicator for that market.
Index-linked bonds: Fixed income securities where both the value of the loan
and the interest payments are adjusted in line with inflation over the life of
the security. Also referred to as inflation-linked bonds.
Inflation: The rate of increase in the cost of living. Inflation is usually
quoted as an annual percentage, comparing the average price this month with
the same month a year earlier.
Investment grade bonds: Fixed income securities issued by a company with a
medium or high credit rating from a recognised credit rating agency. They are
considered to be at lower risk from default than those issued by companies
with lower credit ratings. Default means that a company or government is
unable to meet interest payments or repay the initial investment amount at the
end of a security's life.
Investment trust: An investment trust is a form of collective investment fund
found mostly in the United Kingdom. Investment trusts are closed-end funds and
are constituted as public limited companies.
IRR: Internal Rate of Return.
IPO: Initial Public Offering. The process of offering shares of a private
corporation to the public.
Issuer: An entity that sells securities, such as fixed income securities and
company shares.
Leverage: When referring to a company, leverage is the level of a company's
debt in relation to its assets. A company with significantly more debt than
capital is considered to be leveraged. It can also refer to an investment
company that borrows money or uses derivatives to magnify an investment
position.
LIBOR: The three-month GBP London Interbank Borrowing Rate is the rate at
which banks borrow money from each other (in UK pounds) for a three-month
period.
Liquidity: A company is considered highly liquid if it has plenty of cash at
its disposal. A company's shares are considered highly liquid if they can be
easily bought or sold since large amounts are regularly traded.
Local currency (bonds): Refers to bonds denominated in the currency of the
issuer's country, rather than in a highly traded international currency, such
as the US dollar. The value of local currency bonds tends to fluctuate more
than bonds issued in a hard currency, as these currencies tend to be less
stable.
Long position: Refers to ownership of a security held in the expectation that
the security will rise in value.
Macroeconomic: Refers to the performance and behaviour of an economy at the
regional or national level. Macroeconomic factors such as economic output,
unemployment, inflation and investment are key indicators of economic
performance. Sometimes abbreviated to 'macro'.
Maturity: The length of time until the initial investment amount of a fixed
income security is due to be repaid to the holder of the security.
Mezzanine tranche: A generally small layer of corporate debt positioned
between the senior tranche (mostly AAA) and a junior tranche (unrated,
typically called equity tranche).
Modified duration: A measure of the sensitivity of a fixed income security,
also called a bond, or bond fund to changes in interest rates. The higher a
bond or bond fund's modified duration, the more sensitive it is to interest
rate movements.
Monetary policy: A central bank's regulation of money in circulation and
interest rates.
Morningstar(TM): A provider of independent investment research, including
performance statistics and independent investment company ratings.
Near cash: Deposits or investments with similar characteristics to cash.
Net asset value (NAV): An investment company's net asset value is calculated
by taking the current value of its assets and subtracting its liabilities.
NAV total return: A measure showing how the net asset value (NAV) per share
has performed over a period of time, taking into account both capital returns
and dividends paid to shareholders. The AIC shows NAV total return as a
percentage change from the start of the period. It assumes that dividends paid
to shareholders are reinvested at NAV at the time the shares are quoted
ex-dividend. NAV total return shows performance which isn't affected by
movements in discounts and premiums. It also takes into account the fact that
different investment companies pay out different levels of dividends.
Non-executive director (NED): A non-executive director is a member of a
company's board of directors who is not part of the executive team. A
non-executive director typically does not engage in the day-to-day management
of the organisation, but is involved in policymaking and planning exercises.
Official List: The Official List (or UKLA Official List) is the list
maintained by the Financial Conduct Authority (acting in its capacity as the
UK Listing Authority) in accordance with Section 74(1) of the Financial
Services and Markets Act 2000 (the Act) for the purposes of Part VI of the
Act.
Ongoing charges figure: The ongoing charges figure includes charges for
management of the fund; administration services; and services provided by
external parties, which include depository, custody and audit, as well as
incorporating the ongoing charge figure from funds held in the portfolio
(taking into account any rebates). The ongoing charges figure (as a percentage
of shareholders' funds) is an annualised rate calculated using average net
assets over the period in accordance with the Association of Investment
Companies' (AIC) recommended methodology.
Options: Financial contracts that offer the right, but not the obligation, to
buy or sell an asset at a given price on or before a given date in the future.
Overweight: If an investment company is 'overweight' in a stock, it holds a
larger proportion of that stock than the comparable index or sector.
Payment date: The date on which dividends will be paid by the investment
company to investors.
Private debt instruments: These instruments not tracked on a stock exchange
and typically issued to small groups of institutional investors.
Public: Refers to assets that are listed on a recognised exchange.
REIT (real estate investment trust): A REIT is a company that owns, operates
or finances income-producing real estate.
Retail Prices Index (RPI): A UK inflation index that measures the rate of
change of prices for a basket of goods and services in the UK, including
mortgage payments and council tax.
Securitise/securitisation: The creation and issuance of tradeable securities,
such as bonds, that are backed by the income generated by an illiquid asset or
group of assets. By pooling a collection of illiquid assets, such as
mortgages, securities backed by the mortgages' income payments can be packaged
and sold to a wider range of investors.
Senior tranche: The highest tranche of a debt security, i.e. the one deemed
least risky. Any losses on the value of the security are only experienced in
the senior tranche once all other tranches have lost all their value. For this
relative safety, the senior tranche pays the lowest rate of interest.
Short position: A way for an Investment Manager to express his or her view
that the market might fall in value.
Short dated corporate bonds: Fixed income securities issued by companies and
repaid over relatively short periods.
Short dated government bonds: Fixed income securities issued by governments
and repaid over relatively short periods.
Spread duration: A measure of the portfolio's sensitivity to changes in credit
spreads.
Sub-investment grade bonds: Fixed income securities issued by a company with a
low rating from a recognised credit rating agency. They are considered to be
at higher risk from default than those issued by companies with higher credit
ratings. Default means that a company or government is unable to meet interest
payments or repay the initial investment amount at the end of a security's
life.
Swap: A swap is a derivative contract where two parties agree to exchange
separate streams of cash flows. A common type of swap is an interest rate swap
to hedge against interest rate risk.
Synthetic inflation-linked bonds: Refers to securities created using a
combination of assets to simulate the characteristics of inflation-linked
bonds. By buying inflation-linked government bonds and selling protection
against companies defaulting on their debts, using credit default swaps, the
combined synthetic investment will behave similarly to a physical
inflation-linked bond, had one been issued. Synthetic inflation-linked bonds
are usually created where a company does not have any inflation- linked bonds
in issue.
Tap issuance programme: A method of share issuance whereby the Company issues
shares over a period of time, rather than in one sale. A tap issue allows the
Company to make its shares available to investors when market conditions are
most favourable.
Total return: The term for the gain or loss derived from an investment over a
particular period. Total return includes income (in the form of interest or
dividend payments) and capital gains.
Valuation: The worth of an asset or company based on its current price.
Volatility: The degree to which a given security, investment company, fund, or
index rapidly changes. It is calculated as the degree of deviation from the
norm for that type of investment over a given time period. The higher the
volatility, the riskier the security tends to be.
Weighted average life (WAL): The asset-weighted average number of years to
final maturity of the portfolio, based on the final maturity for all
assets/exposures.
Yield: This refers to either the interest received from a fixed income
security or to the dividends received from a share. It is usually expressed as
a percentage based on the investment's costs, its current market value or its
face value. Dividends represent a share in the profits of a company and are
paid out to the Company's shareholders at set times of the year.
Yield to maturity: The total return anticipated on the portfolio if the
underlying bonds are held until maturity.
ISIN: GB00BFYYL325, GB00BFYYT831
Category Code: ACS
TIDM: MGCI
LEI Code: 549300E9W63X1E5A3N24
OAM Categories: 1.1. Annual financial and audit reports
Sequence No.: 47490
EQS News ID: 978343
End of Announcement EQS News Service
1: https://link.cockpit.eqs.com/cgi-bin/fncls.ssp?fn=redirect&url=e637454342a72b23547dc3e617ccf445&application_id=978343&site_id=vwd&application_name=news
(END) Dow Jones Newswires
February 19, 2020 02:00 ET (07:00 GMT)
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