Corporate loan fund marks three-year milestone

A listed investment trust that provides Australian investors with direct exposure to the Australian corporate loan market has just recorded its third consecutive year since inception of delivering positive returns.

The MCP Master Income Trust (ASX:MXT), launched in October 2017, opened up a sector of the fixed income market that was previously only available to high net worth and institutional investors.

MXT is a managed fund by Sydney-based Australian non-bank corporate lender and alternative asset manager Metrics Credit Partners.

Since inception MXT has delivered a net return of 5.41%, a spread of 4.25% above the RBA cash rate[1] and well above its target of 3.25% over RBA Cash. MXT is positively rated by all the major ratings agencies, including a ‘Superior’ investment rating by Australia Rating Analytics (Australia Ratings) and a ‘Highly Recommended’ by Zenith Investment Partners.

Andrew Lockhart, Metrics Managing Partner said: “The Australian corporate loan market is an attractive alternative source of income from a capital stable asset class for investors, and delivers an important source of non-bank debt finance to support the growth of Australian companies.

“We launched MXT to give investors a way to access this exciting opportunity set in a simple, listed format that provides liquidity not usually available in this asset class.”

MXT invests in a diversified portfolio of around 150 loans to Australian corporates, with the interest and fees paid by borrowers delivering monthly income for investors.

MXT has continued to pay its regular monthly income distribution and maintain a stable market value throughout the COVID pandemic.

“Financial markets and the operating environment have changed a great deal since we first launched MXT, however this performance shows the fund is structured to perform throughout market cycles, delivering a stable source of income and superior risk-adjusted returns compared to traditional asset classes,” Lockhart said.

Alternative to traditional asset classes

Mr Lockhart said corporate loans offered a potential alternative to traditional fixed income or equity investments, due to the regular income they provide, coupled with the defensive nature of the underlying investments.

“Corporate loans may be lower risk investments compared with growth assets such as equities and property because they come with a range of embedded protections. Loans are generally secured by the borrower’s assets and lenders are paid before equity holders in the unlikely event of business insolvency. In addition, returns are linked to inflation,” he said.

In contrast to most fixed income and term deposits, corporate loans can also provide daily liquidity if invested in through an Australian Stock Exchange-listed vehicle.

Lockhart added that corporate loans have a low correlation to other major asset classes including equities, government bonds, hybrids and term deposits, providing an excellent source of portfolio diversification for investors.

In addition to the potential for an attractive total return, Lockhart said that corporate loans also offer regular, consistent income.

“This is a key benefit if you are an investor who relies on income to meet your day-to-day expenses.”

Metrics also offers a second listed ASX corporate loan fund, the MCP Income Opportunities Trust (MOT), launched in April 2019. MOT targets a higher cash yield of 7% p.a., paid monthly, with a total target return of 8-10%, net of fees and expenses.

Since inception, MOT has also exceeded its minimum target return. MOT was launched to provide investors with an alternative to direct investment in equities. Many investors invest in equities to generate income, whereas MOT provides an alternative way of generating income via direct lending to companies.

[1] IPO 9 October 2017. Performance is annualised and assumes participation in Distribution Reinvestment Plan (DRP). Past performance is not a reliable indicator of future performance.

Fixed Income News Australia – 5 November 2020