The Manning Monthly Income Fund delivered +0.58% in February (noting the 28 day month, this is equivalent to 0.64% for a 31 day month), 8.73% over 12 months and 9.28% annualised over three years continuing to deliver over 5% net return above the RBA cash rate.
The Fund is currently carrying a higher than targeted level of cash due to forthcoming transaction settlements. Typically, monthly fluctuations in returns are due to cash levels within the Fund.
Geopolitics, Inflation and What Actually Matters
The macro backdrop has become noisier again. Recent conflict in the Middle East has pushed fuel prices higher, and the RBA has explicitly noted that, if sustained, higher fuel prices will add to inflation and that short term inflation expectations have already risen. At the same time, Australian inflation remains sticky, with CPI running at 3.8% in the 12 months to January and trimmed mean inflation at 3.4%. In response, the RBA has resumed tightening this year, on Tuesday lifting the cash rate to 4.10%.
For credit investors, there are two separate questions:
- The first is what these developments do to asset prices and market sentiment.
- The second is what they do to the actual cashflows that service debt.
The former tends to move quickly and dominate headlines. The latter is what ultimately determines repayment and capital outcomes.
Asset Prices vs Cashflows
The distinction is particularly relevant in the current environment. When inflation prints above expectations and rate expectations reprice, duration assets adjust immediately. Government bond yields move higher, credit spreads can widen, and mark to market losses are reflected in portfolios in real time. This is most visible in long duration fixed income strategies, where small moves in yields translate into meaningful price volatility.
This often leads to a feedback loop in investor behaviour. Negative mark to market performance drives sentiment, which in turn can force asset sales into weaker markets, further impacting pricing. In more liquid public markets this process can occur quickly. In less liquid strategies, valuation adjustments may lag but are ultimately driven by the same underlying repricing of discount rates and risk. Importantly, these moves are not necessarily a reflection of underlying credit deterioration. They are primarily a function of how assets are valued, rather than how they perform. A loan can continue to pay exactly as expected, while the market value of that exposure moves materially as discount rates change.
This is where the second question becomes more relevant. From a credit perspective, the key issue is whether the borrower continues to generate sufficient cashflow to meet its obligations, and how the structure responds if performance weakens. Inflation, higher rates and slower growth can all place pressure on borrowers, but the transmission of that pressure depends on how the exposure is structured.
For asset-backed credit in particular, the focus remains on the performance of large pools of underlying loans, rather than on any single borrower or asset valuation. Cashflows are generated by the underlying loan repayments and pass through the structure according to predefined rules. Structural features such as excess spread, subordination and performance triggers are designed to absorb variability in arrears and losses before they impact investor capital. In contrast, in parts of the market where returns are more closely linked to asset values, refinancing conditions or concentrated borrower performance, the same macro developments can have a more direct and immediate impact on outcomes. In practical terms, this is why periods of macro volatility can create a disconnect between headlines and underlying credit performance. Markets tend to focus on price movements and sentiment, while the more relevant question for credit investors remains unchanged: how is the loan being repaid, and what happens if it is not.
Through the Cycle
This is not a new dynamic.
Over the past decade, the Fund has operated through a wide range of market conditions, including periods of elevated geopolitical tension, dislocation during COVID, and more recently, the fastest interest rate tightening cycle in Australia in decades. Each period has been characterised by its own set of concerns, often dominating investor attention at the time. While the underlying drivers differ, the pattern is consistent. Market sentiment adjusts quickly, asset prices reprice, and the narrative shifts. What tends to matter over time is less the specific catalyst and more how exposures are structured to perform through those conditions.
From a portfolio perspective, this is where scenario analysis and stress testing become relevant. While outcomes are never certain, we typically assess how underlying exposures are expected to behave under a range of more challenging conditions, including higher rates, slower growth and elevated arrears. The focus is not on predicting any single scenario, but on understanding how cashflows, credit support and structural features interact if conditions deteriorate.
This approach is intended to provide resilience across cycles, rather than reliance on a particular macro outcome. In practice, periods of uncertainty tend to reinforce the same underlying principles - clarity on how loans are repaid, how risk is absorbed and how structures respond when performance weakens.
