MXT, MOT and MDIF Reviews


January 31, 2024
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We have published reviews for Metrics Master Income Trust (ASX: MXT), Metrics Income Opportunities Trust (ASX: MOT) and Metrics Direct Income Fund (MDIF). A summary of the rating outcomes is provided below. The full reports can be found on the IIR website.

MXT – IIR has maintained a Recommended Plus rating for the Metrics Master Income Fund (ASX: MXT). MXT’s portfolio has delivered attractive risk-adjusted returns when compared to the domestic equity market and fixed rate Australian Investment Grade and High Yield Bonds, with the portfolio benefiting from the predominantly floating rate exposure of its loans and low capital volatility. The Trust has
provided a regular monthly distribution to investors with no correlation to the domestic equity market over the five years to 31 August 2023, providing diversification to an investors broader portfolio. The Trust provides retail investors access to the private credit market, in which investment options are limited, with the benefit of secondary market liquidity and a highly diversified portfolio. The Manager has grown significantly in recent years with investors benefiting from the scale achieved by the Manager. The Manager has seen very few default events and no loss of capital in any of the funds issued by the Manager to date, however we note that the credit risks in the current environment are elevated with corporate loan defaults likely to rise as the impact of the increase in interest rates continues to filter through the economy and a slowing growth backdrop, which may result in an increase in the number of workouts required within the portfolio. While credit risks are elevated we note the vast majority of loans the Trust is exposed to are senior ranking and secured.

MOT –  IIR has maintained a Recommended rating for the Metrics Income Opportunities Trust (ASX: MOT). MOT’s portfolio has delivered an attractive risk-adjusted return when compared to domestic equities and Australian Investment Grade and High Yield Corporate Bonds. The portfolio has benefited from the increasing interest rate environment with the portfolio having a large floating rate exposure. We note there is some fixed rate exposure in CT combined with equity which has seen the increase in the cash distribution somewhat muted when compared to the rise in interest rates. The increase in interest rates has seen the cash distribution exceed the target cash distribution over the
last 12-months and assisted with the portfolio delivering on its target return objective of delivering a return of 8%-10%p.a. through the economic cycle. The portfolio is diversified by investment and borrower, however is exposed predominantly to the CRE debt market through its exposure to REDF and CT with over 80% of the portfolio exposed to the real estate sector at 31 August 2023. As such, a prolonged downturn in this sector of the private credit market, in particular the residential CRE market, may have an adverse impact on the performance of the Trust. There are a number of tailwinds for the residential CRE debt market, including population growth and housing under supply, however there are also elevated risks as the impact of the increase in interest rates continues to filter through the economy and a slowing growth backdrop, which may result in an increase in the number of workouts required within the portfolio. The hands on, active style of management of the Manager is expected to be beneficial during this period of elevated risk.

MDIF –  IIR has upgraded the rating for the Metrics Direct Income Fund (MDIF) from Recommended to Recommended Plus. The rating upgrade brings the rating for MDIF in line IIR’s rating for the listed version of the fund, Metrics Master Income Trust (ASX: MXT). MDIF has achieved its target objectives since being established in July 2020 with the Trust delivering a monthly distribution that has consistently exceeded the target distribution rate. The predominantly floating rate exposure of the portfolio has seen investors benefit from the increasing interest rate environment with the Trust providing an attractive risk-adjusted return compared to domestic equities and Australian Investment Grade and High Yield Corporate Bonds. The unlisted unit trust structure provides the benefit of entering and exiting the Trust at NAV, however redemptions are limited to monthly gates with redemptions having the potential to be restricted depending on the liquidity of the Trust. The Trust has the ability to invest in MXT units which provide the Trust with potential liquidity to meet redemption requests, however movements in the market price of MXT units has resulted in increased NAV volatility over the Trust’s history. The Manager has grown significantly in recent years with investors benefiting from the scale achieved by the Manager. The Manager has seen very few default events and no loss of capital in any of the funds issued by the Manager to date, however we note that the credit risks in the current environment are elevated with corporate loan defaults likely to rise as the impact of the increase in interest rates continues to filter through the economy and a slowing growth backdrop, which may result in an increase in the number of workouts required within the portfolio. While credit risks are elevated we note the vast majority of loans the Trust is exposed to are senior ranking and secured.