I am posting to raise people’s awareness of an investment that beats the S&P while being less than half as volatile. It’s been on the NYSE for over 50 years and it has only had a negative (NAV-based) return 2 of those years. Throughout this post I’ll be using NAV-based total return to discuss the performance.
I’m calling this an “unTeaser” because it does discuss an investment, but it is not a shiny new idea, and I’m hoping to stick to hard facts—because the hard numbers speak for themselves.
[This is not financial advice, and I am not a financial professional.]
The investment is Barings Corporate Investors, a little-known closed-end fund that only came onto my radar this year. It amazes me that it is not more widely known given its track record. Its ticker symbol is MCI. (It used to be called MassMutual Corporate Investors.) Its business model today is primarily issuing private loans to businesses (Bank Loans) with direct liens against the company’s assets. These loans generally have floating interest rates based on prevailing interest rates, so their profits have increased recently due to rising interest rates. It does exceptionally well during times of elevated interest rates, but even during the “free money” lunacy of the 2010s it had an annualized return > 12%.
Of the 27000+ funds that Morningstar tracks, MCI has the best longterm Sharpe Ratio (a measure comparing outperformance to volatility).
It was first listed on the NYSE in 1973 and of the 50 calendar years from 1974 to 2023 it has only lost money twice:
— In 1974 (Following collapse of the Bretton Woods global financial system) MCI lost 5.6%; the SPY lost 26.47% the same year.
— In 2008 (year of Lehman brother’s collapse) MCI lost 10.34% while the SPY’ lost 37%.
Over the 3 years from 2000-2002, when the stock market was handling the dot-com bust and then 9/11, MCI investors saw a (cumulative) gain of 19.1% while the SPY lost 37.6%.
Across the 50 calendar years it has been on the NYSE, it’s beaten the SPY on average by about 1.6 percentage points annually ~12.8% versus 11.2%. (The 12.8 is an approximation—prior to 1980 it is laborious to calculate total return each year. The earliest SEC filings I can get provide 25-year annualized data from June 1978 to June 2023.)
If we exclude the 70s, which were not good for the S&P, and start from 1980 (A great year for the stock market) and go through 2023 (another great year for the stock market), MCI’s still outperforms the S&P by 1.25 percentage points: 13.17% vs. 11.83%.
The fund had its inception in 1971, but it actually has roots going back far into history, back to the Louisiana purchase. (That is a fun story itself, which you can read about on Wikipedia [Barings Bank].
I own shares in MCI but otherwise have no connection with the fund.
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
Worth a look, Always looking for steady performers when the market topping
Thanks, that’s one I’ve never looked at — have they had the same management team for a long time? What does the fund’s cost structure/expense ratio look like? How much leverage do they use? Those are the first questions I’d ask, but I’ll try to take some time to check this one out.
They have a large group of trustees managing the fund, and there is some movement from year to year, but the two main principals right now are Christina Emery and Sean Feeley, who have been with the trust since 2005 and 2003 respectively as Managing Directors.
Expense Ratio (excluding interest) = 1.58%
Net Interest Expense ratio = 0.51%
Total effective expense ratio of 2.09%
Leverage is conservative = 14%
There are no loads or fees, etc., but it is a CEF, so the market price can differ from the NAV.
Thanks — looks like it’s close to a 10% premium to NAV right now, and has usually traded at a small premium… though was at a big discount last year as people fled bonds.
It has been trading at a discount for almost the entirety of the last 3 years. Their shares have gone up extremely rapidly the last few months, possibly due to the increase in their dividends. (Their loans are primarily floating rate, so the higher interest rates have been good for them.)
It only publishes a NAV every quarter, and the last one published was 17.07 / share.
Yields have gone down since then, which may slightly reduce its NAV, but it’s hard to say.
I expect a new NAV published later this month. They will presumably need to do it when the dividend pays out on the 19th, for they have a DRIP.