Christopher
Johnson:
Welcome
to
Morningstar
U.K.
My
name
is
Christopher
Johnson.
Today,
I’m
joined
by
Pieter
Staelens,
Portfolio
Manager
of
the
CVC
Income
&
Growth
Trust.
Thank
you
so
much
for
being
here
with
me.
Pieter
Staelens:
Thanks,
Chris.
CJ:
So,
my
first
question
to
you
is
what
is
the
missing
link
between
ISAs
and
investment
trusts?
PS:
Investment
trusts
are
actually
perfect
for
ISAs.
I
mean
if
you
think
of
it,
a
lot
of
investment
trusts
give
retail
investors
access
to
asset
classes
that
are
generally
only
accessible
to
larger
institutional
investors
and
it’s
the
same
for
us.
When
I
look
at
our
investor
base,
the
very
large
majority
are
institutional
investors,
but
through
this
trust
we
give
access
to
more
retail
investors.
And
if
you
can
put
this
in
an
ISA
wrapper,
we
provide
income
and
growth
to
investors,
so
it’s
nice
to
be
able
to
put
that
in
an
ISA
wrapper.
CJ:
So
according
to
the
Association
for
Investment
Companies
the
share
price
total
return
reached
14.4%
over
the
one
year
to
March
2024.
So,
what
has
been
the
key
to
the
fund’s
recent
success?
PS:
We’ve
had
a
very
strong
year.
And
if
you
look
at
the
14.4%,
that
excludes
the
dividends
because
we’re
paying
roughly
9%
dividend
yields
right
now.
So,
the
all-in
return
for
investors
were
great
last
year.
And
what
drives
that?
It’s
the
high
income
we’re
getting
on
the
loans
we’re
investing
in
right
now.
That’s
partially
a
result
of
base
rates
having
gone
up
a
lot.
So,
as
inflation
went
up,
the
central
banks
hiked
base
rates
and
that
has
really
flown
through
to
the
income
we’re
generating
on
the
fund.
And
on
top
of
that,
we
have
a
more
credit
opportunities
sleeve
in
the
fund
and
that’s
performed
incredibly
well
as
well
over
the
last
12
months.
So,
because
if
you
think
of
it
over
the
last
10
years
or
so
central
banks
were
doing
QE,
they
were
keeping
credit
spreads
tight,
so
the
coupons
we
were
getting
were
much
lower
previously
and
now
with
central
banks
stepping
back
and
not
engaging
in
QE
anymore,
there’s
a
lot
more
interesting
opportunities
we
can
look
at
and
that’s
great
for
our
investors.
CJ:
Doncasters,
the
superalloy
manufacturer
is
your
top
issuer
at
5.41%.
So,
why
this
company?
PS:
This
is
a
company
we’ve
been
following
for
many,
many
years,
and
that’s
the
same
across
the
entire
platform.
A
lot
of
the
businesses
we’re
lending
to
we’ve
been
following
for
many,
many
years.
And
at
some
point,
the
loans
did
trade
off
and
we
managed
to
buy
some
of
these
loans
at
a
nice
discount
to
par.
Of
course,
things
didn’t
really
work
out
as
planned
and
we
had
to
go
through
a
financial
restructuring
of
the
business
and
so
we
actually
ended
up
owning
the
equity
of
the
business.
And
then
we
spent
a
lot
of
time
looking
at
the
business.
We
put
a
new
board
in
place,
we
put
a
new
management
team
in
place,
and
the
company
has
really
grown
earnings
considerably.
The
equity
valuation
has
gone
up
nicely
over
the
last
couple
of
years
and
we’re
confident
that
the
business
will
continue
to
grow
their
earnings.
So,
we
continue
to
see
further
upsides
to
this
position.
So,
it
used
to
be
a
smaller
position,
but
because
of
the
growth
we’ve
seen
in
the
share
price
of
the
business,
it’s
actually
grown
a
much
bigger
position
over
time.
CJ:
And
so
how
are
you
involved
in
changing
the
management
of
the
team
at
Doncasters?
PS:
The
previous
owners
of
the
business,
they
had
some
internal
issues,
and
they
couldn’t
repay
our
loans
when
the
loans
were
due.
And
similar
to
what
a
bank
would
do,
if
you
cannot
repay
your
mortgage,
we
basically
enforced
our
security
and
we
took
over
the
business
as
a
group
of
lenders
effectively.
And
through
that,
we
put
a
new
board
in
place,
put
new
management
team
in
place
and
we
effectively
control
the
business
right
now.
CJ:
Another
issuer
that
I
wanted
to
hear
a
little
bit
about
would
be
Hotelbeds,
a
Spanish
company?
Can
you
talk
to
me
about
that?
PS:
Yeah.
So,
Hotelbeds
is
a
business
we
invested
in
on
the
back
of
COVID.
I
mean,
obviously
the
business
was
impacted
from
COVID.
So,
they
are
a
B2B
operator.
So,
when
hotels
have
spare
bedrooms,
they
can
put
that
on
the
Hotelbeds
system.
And
then
travel
operators
can
look
into
that
system
to
see
which
hotels
have
availability.
So,
they’re
effectively
a
crucial
part
of
the
travel
infrastructure.
And
because
they
were
so
crucial
to
both
their
clients
and
suppliers,
we
thought
that
this
was
going
to
be
a
business
that
would
come
out
of
COVID
in
much
better
shape.
Of
course,
the
business
had
its
issues
during
COVID.
There
was
cash
burn
and
everything.
But
we
did
feel
comfortable
that
the
valuation
of
the
business
was
much
higher
than
the
debt
we
were
investing
in,
and
that
the
business
would
come
out
of
COVID
much
stronger.
And
it
has
actually
played
out
really
nicely.
The
business
is
now
generating
higher
revenues
and
EBITDA
than
pre-COVID.
And
there’s
been
some
talk
in
the
press
that
the
business
is
may
be
looking
at
an
IPO.
So
again,
that’s
an
investment
thesis
that
worked
out
really
well
for
us.
CJ:
I
was
quite
interested
by
your
January
factsheet.
So,
in
it
you
said
that
you
reduced
the
fixed
rate
of
high
yield
exposure
in
the
fund.
That
was
after
the
rally
that
took
place
in
November-December
of
2023.
So,
what
drove
that
decision?
PS:
It
may
sound
counterintuitive
when
central
banks
are
maybe
more
likely
to
cut
rates
than
to
hike
rates
to
increase
floating
rates
exposure
and
reduce
fixed
rate
exposure.
But
as
with
anything
in
financial
markets,
it’s
not
about
what
central
banks
are
going
to
do
next,
but
about
what’s
priced
into
the
markets
already.
So,
in
January,
the
market
was
pricing
in
a
lot
of
rate
cuts
by
central
banks.
When
you
look
at
inflation
and
some
of
the
inflation
data
that
came
out
even
this
morning,
we’re
seeing
6%
wage
growth
in
the
U.K.
We’re
still
far
away
from
that
2%
target
that
central
banks
had
set.
So,
we
believe
that
there
may
be
rate
cuts
coming,
but
they’re
not
going
to
come
as
quickly
as
the
market
was
pricing
in.
So
floating
rates
credit
effectively
looked
a
lot
more
interesting
than
fixed
rate
credits,
because
we’re
getting
much
higher
coupons.
These
coupons
may
go
down
marginally
over
time,
but
I
think
at
least
for
the
near
term,
floating
rate
credit
looks
a
lot
more
interesting.
CJ:
Pieter,
thank
you
so
much
for
taking
the
time
to
speak
to
me.
PS:
Alright.
Thanks
Chris.
CJ:
This
is
Christopher
Johnson
from
Morningstar
UK.
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