The Manning Monthly Income Fund delivered +0.64% in September 2026, bringing net returns to 8.21% over 12 months, 9.03% per annum over three years, 8.57% per annum over five years and 7.37% per annum since inception in April 2016.
The Fund targets the RBA cash rate plus 5% per annum over rolling five years. Over five years the Fund exceeded the cash rate by 5.27% per annum, and by 4.17% over the past 12 months.
Returns are inclusive of distributions, net of fees and exclude tax. Past performance is not a reliable indicator of future performance.
The impact of changing interest rates
Fixed income is often treated as a single defensive allocation. In practice, returns across the asset class can come from different sources and respond quite differently when interest rates and credit spreads move.
September provided another reminder of this distinction. The RBA increased the cash rate to 4.60%, while Australian government bond yields reached levels not seen for approximately 15 years. At the same time, spreads widened across parts of the public Asset-Backed Securities (ABS) and Residential Mortgage-Backed Securities (RMBS) markets.
For investors, these movements matter because a fixed income portfolio can derive its returns from three broad sources: the underlying interest rate (RBA cash rate), the credit margin and changes in the market value of its investments.
Traditional fixed-rate bonds lock in a coupon for a defined period. When market interest rates fall, the value of that fixed coupon increases, and bond prices generally rise. When rates rise, the opposite occurs. A government bond may have very little credit risk, but it can still experience a meaningful decline in value if interest rates increase, particularly where its duration is long.
This has become increasingly relevant as expectations for the path of interest rates have repeatedly changed. Investors attempting to position portfolios for falling rates have discovered that even a high quality bond portfolio can produce disappointing results when the timing or direction of that forecast proves incorrect.
Floating-rate credit behaves differently. Its income generally comprises a reference rate, such as Bank Bill Swap Rate (which broadly tracks the RBA cash rate), plus a credit margin. As the reference rate changes, the coupon resets, substantially reducing the portfolio’s direct sensitivity to movements in interest rates and therefore government bond yields. Accordingly, returns are less dependent on correctly predicting the next move in interest rates.
That distinction is particularly valuable when relationships that investors have historically relied upon become less dependable. The performance of bonds relative to equities, inflation and economic growth is not fixed. It depends heavily on the economic environment and the source of a market movement.
Rather than making a large portfolio bet on the direction of interest rates, we prefer to focus on an area where we believe we have a more repeatable advantage: assessing credit, structuring transactions and ensuring investors are adequately compensated for the risks being taken.
Public and private markets
There is also an important distinction between public and private credit, even where the underlying assets appear similar.
Over recent years, funds with significant exposure to publicly traded ABS and RMBS benefited not only from the income earned on those securities, but also from mark-to-market gains as credit spreads compressed and the value of their existing holdings increased.
That effect is now beginning to reverse. As spreads widen, managers must revalue their existing portfolios using current market pricing. This can reduce the carrying value of securities purchased when spreads were tighter, even where the underlying collateral continues to perform and there has been no deterioration in credit or expected cashflows.
For public ABS and RMBS strategies, wider spreads therefore have two opposing effects. They can detract from short term returns as the existing portfolio is marked to market, while creating more attractive prospective returns as capital is invested into new transactions at wider margins.
The Manning Monthly Income Fund is not a public ABS and RMBS strategy. Its focus is on privately negotiated asset-backed and mortgage-backed warehouse facilities provided to specialist non-bank lenders.
Private assets are not immune to changes in value, nor should they be. If the underlying assets deteriorate, expected cashflows change or the risk of a transaction increases, that must be reflected appropriately. However, their valuation is not driven by daily movements in quoted public-market spreads in the same way as publicly trades ABS or RMBS. Performance is more directly linked to the behaviour of the underlying loan portfolio, the contractual cashflows and the protections negotiated when the facility was established.
In return for undertaking the origination, analysis, structuring and ongoing monitoring required, we seek to earn a complexity, structuring and illiquidity premium. It is this additional margin, together with stronger lender protections, that we believe can produce a better risk-adjusted return than simply purchasing more readily available public securities.
The Manning Monthly Income Fund
Approximately 88% of the Fund’s investments are floating rate. This is well aligned with the Fund’s objective of outperforming the RBA cash rate by 5% p.a. over rolling 5 years, net of fees, excluding tax.
When the cash rate rises, both the Fund’s return objective and the reference rate earned on most of its investments move higher. When it falls, both generally move lower. The credit margin earned above that reference rate is intended to provide the Fund’s outperformance, without requiring us to take a significant view on the direction of interest rates.
The current combination of a high underlying cash rate, wider credit spreads and more selective funding markets is producing attractive opportunities. It can allow us to deploy capital at higher prospective returns while negotiating structures designed to provide greater protection if conditions become more difficult.
Floating and fixed-rate assets, and public and private markets, can each play an appropriate role in a portfolio. The important element is to understand where the return is coming from, what assumptions it depends upon and how the investment is likely to behave when market conditions change.
Our investment process doesn’t require us to predict the next interest rate move or rely on market spreads continuing to tighten. Our focus is on deploying capital into privately structured transactions where the income and protections adequately compensate investors for the credit, complexity and liquidity risks being assumed.
