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Current Unit Price: (20 min. delayed price) ASX:MOT $2.20 0.00%
NAV as at COB: 23.05.24 $2.1497

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Listed products offer route into fast-growing private debt market

Listed investment fund products can let retail investors tap into the fast-growing private debt sector to benefit from its higher-than-average yield and low volatility.

Private debt has grown in popularity over the past decade as a result of its capacity to provide an alternative source of income to equity dividends and bonds. Most investments are made via unlisted funds, but listed products allow investors to access the market for a lower minimum investment – and to also benefit from the daily liquidity of the ASX.

Metrics Credit Partners pioneered listed private debt vehicles in Australia and now offers two listed investment trusts alongside its unlisted funds to allow investors to choose different types of products.

Private debt funds raise money from investors and lend it directly to medium-to-large-sized companies. The returns to investors are generated from the interest and fees paid by those borrowers, minus fund costs.

The global financial crisis sparked the growth of the market as banks were required to become more conservative in their lending in its aftermath.

Why invest?

More conservative funds can deliver a return of around 8 per cent to 9 per cent, an attractive alternative to corporate bonds, hybrids, government bonds or even cash deposits. A higher yield fund can deliver additional returns to provide a favourable alternative to investing in equities for income.

The floating rates offered by many private debt funds also rise with official interest rates to provide a useful hedge against inflation.

Metrics Master Income Trust (ASX: MXT) was listed in October 2017 and seeks to generate monthly income of the RBA cash rate plus 3.25% p.a. (currently 7.60% p.a.) net of fees from a diversified portfolio of around 300 direct corporate loans. The fund returned 9.44% net income over 12 months to 31 March 2024 and 6.01% p.a. net of fees since its inception on 9 October 2017.

Metrics Income Opportunities Trust (ASX: MOT) targets a cash yield of 7% p.a. which is intended to be paid monthly with a total target return of 8%-10% p.a., in each case net of fees. In the 12 months to 31 March 2024, the fund’s total return was 10.44% and since inception (29 April 2024) returned 9.0% p.a.

Listed funds like these offer daily liquidity via on-market trading on the ASX but are exposed to market volatility. Unlisted funds, on the other hand, are not exposed to the daily volatility of the share market but may only allow monthly, or quarterly, redemptions.

Ultimately, the choice between the two fund types will likely depend on individual preference.

Note: Past performance is not a reliable indicator of future performance. Income payments depend on the success of underlying investments and are at the responsible entity’s discretion. Return of capital and target return may not be achieved.

26 April 2024 | ASA Equity Magazine

The Trust Company (RE Services) Limited ABN 45 003 278 831, AFSL 235 150 is the Responsible Entity of the Metrics Master Income Trust and Metrics Income Opportunities Trust (the Trusts).
This content has been prepared by Metrics Credit Partners Pty Ltd ABN 27 150 646 996 AFSL 416 146 (Metrics), the investment manager of the Trusts. For further information on the Trusts, please refer to the relevant PDS and Target Market Determination available at metrics.com.au.

The information provided is issued by The Trust Company (RE Services) Limited and has been prepared to provide you with general information only. In preparing this information, The Trust Company (RE Services) Limited did not consider the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this information. Neither The Trust Company, Metrics nor any of their related parties, their employees or directors, provide any warranty of currency, accuracy, completeness or reliability in relation to such information or accept any liability to any person who relies on it. Neither The Trust Company nor Metrics guarantees repayment of capital or any particular rate of return from the Fund. Always consult a licensed and trustworthy professional before making a financial, taxation or legal decision.

Total returns mentioned for the Metrics Master Income Trust (ASX: MXT) and Metrics Income Opportunities Trust (ASX: MOT) have been calculated using exit prices after taking into account all of Perpetual’s ongoing fees and assuming reinvestment of distributions. No allowance has been made for taxation.