SEC Form N-CSRS filed by Allspring Multi-Sector Income Fund

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21331

Allspring Multi-Sector Income Fund

(Exact name of registrant as specified in charter)

1415 Vantage Park Drive, 3rd Floor, Charlotte, NC 28203

(Address of principal executive offices) (Zip code)

Matthew Prasse

Allspring Funds Management, LLC

1415 Vantage Park Drive, 3rd Floor, Charlotte, NC 28203

(Name and address of agent for service)

Registrant’s telephone number, including area code: 800-222-8222

Date of fiscal year end: October 31

Date of reporting period: April 30, 2024

ITEM 1. REPORT TO STOCKHOLDERS

 

Allspring Multi-Sector Income Fund (ERC)

Semi-Annual Report

April 30, 2024

---

Letter to shareholders (unaudited)

 

Andrew Owen

President
Allspring Funds

Dear Shareholder:

We are pleased to offer you this semi-annual report for the Allspring Multi-Sector Income Fund for the six-month period that ended April 30, 2024. Globally, stocks and bonds had positive returns for the period. However, markets were volatile as investors focused on persistently high inflation and the impact of aggressive central bank rate hikes. Riskier assets rallied as investors anticipated an end to the tight monetary policy.

For the period, U.S. stocks, based on the S&P 500 Index,1 returned 20.98%. International stocks, as measured by the MSCI ACWI ex USA Index (Net),2 gained 17.69% while the MSCI EM Index (Net) (USD),3 returned 15.40%. Among bond indexes, the Bloomberg U.S. Aggregate Bond Index4 advanced 4.97%, the Bloomberg Global Aggregate ex-USD Index (unhedged)5 gained 3.92%, the Bloomberg Municipal Bond Index6 returned 7.06%, and the ICE BofA U.S. High Yield Index7 gained 8.94%.

Investors remained focused on central bank monetary policies.

As the six-month period began in November, the market mood brightened as cooling inflation inspired confidence that central banks could hold off on further rate hikes. Overall annual inflation in the U.S. fell to 3.1% in November while 12-month inflation in the U.K. and the eurozone eased to 4.6% and 2.4%, respectively—far below their peak levels of mid-2022. Third quarter annualized U.S. GDP growth was raised to an estimated 5.2% while U.S. job totals rose by close to 200,000 in November, indicating a slight cooling of the labor market. All of this fresh evidence added to confidence for a U.S. soft economic landing, leading to a more buoyant mood heading into winter.

The broad year-end rally among stocks and bonds continued in December as investors became more confident that monetary policy would ease in 2024. Supporting the bubbly market mood were reports confirming lower inflationary trends in the U.S. and Europe. During the period, it appeared more likely that the U.S. economy could achieve a soft landing, cooling enough to lower inflation without the pain of a recession. However, by year-end, an expectations gap developed. Capital markets priced in a total of 1.50 percentage points in federal funds rate cuts in 2024—twice as much as the three cuts of 0.25% hinted at by Fed officials.

1

The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

2

The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed and emerging markets, excluding the U.S. Source:  MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index.

3

The MSCI Emerging Markets (EM) Index (Net) (USD) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. You cannot invest directly in an index.

4

The Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S.-dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index.

5

The Bloomberg Global Aggregate ex-USD Index (unhedged) is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S.-dollar-denominated debt market. You cannot invest directly in an index.

6

The Bloomberg Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

7

The ICE BofA U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high yield bonds. The index tracks the performance of high yield securities traded in the U.S. bond market. Returns shown are net of transaction costs beginning on July 1, 2022. You cannot invest directly in an index. Copyright 2024. ICE Data Indices, LLC. All rights reserved.

2 | Allspring Multi-Sector Income Fund

---

Letter to shareholders (unaudited)

Financial market performance was mixed in January 2024 as U.S. stocks had modest gains while non-U.S. equities, particularly those in emerging markets, and fixed income assets were held back by central bank pushback on market optimism over rate cuts. Overall, optimism was supported by hints of a soft landing for the U.S. economy. Key data included a surprisingly strong gain of 353,000 jobs in January, an unemployment rate of just 3.7%, and a rise of just 3.1% in the annual Consumer Price Index (CPI)1 in January. However, that resilience helped tone down expectations of a rate cut in March to a more likely second quarter initial move.

In February, stocks were supported by positive economic data and strong corporate earnings. However, fixed income investments were under pressure as resilient inflation curbed expectations on the timing of interest rate cuts. The S&P 500 Index had solid monthly gains along with emerging market equities, which benefited from a rebound in China.

The first quarter of 2024 closed with ongoing stock market momentum and a more muted sense of confidence in fixed income markets as investors adjusted to the prospect of greater-than-expected economic strength. On the flip side, expectations on the timing of an initial Fed rate cut were pushed back from March to June and then beyond. Additionally, the number of quarter-point rate cuts forecast by the market fell from six as projected in December 2023 to two to three cuts by fiscal period-end.

Markets retreated broadly in April as U.S. annual inflation continued to resist monetary policy efforts and expectations for its downward trajectory, with an April CPI reading of 3.4%. The timing of a Fed initial rate cut came into greater question in April. Not only was there less confidence regarding when a first cut would take place but also whether any rate reductions would occur at all in 2024. Market expectations continued to recede to a possible September Fed first cut. Meanwhile, eurozone annual inflation held steady in April at 2.4%. Developed market stocks and fixed income securities of all types were in the red for April.

Don’t let short-term uncertainty derail long-term investment goals.

Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

Thank you for choosing to invest with Allspring Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

Andrew Owen
President
Allspring Funds

“ The first quarter of 2024 closed with ongoing stock market momentum and a more muted sense of confidence in fixed income markets as investors adjusted to the prospect of greater-than-expected economic strength. ”

For further information about your fund, contact your investment professional, visit our website at allspringglobal.com, or call us directly at 1-800-222-8222.

1

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. You cannot invest directly in an index.

Allspring Multi-Sector Income Fund | 3

---

Performance highlights (unaudited)

 

Growth of $10,000 investment as of April 30, 20241

  

1	The chart compares the performance of the Fund for the most recent ten years with the Bloomberg U.S. Universal Bond Index and Multi-Sector Income Blended Index. The chart assumes a hypothetical investment of $10,000 investment and reflects all operating expenses of the Fund.

 

Comparison of NAV vs. market value1

  

1	This chart does not reflect any brokerage commissions charged on the purchase and sale of the Fund’s common shares. Dividends and distributions paid by the Fund are included in the Fund’s average annual total returns but have the effect of reducing the Fund’s NAV.

 

Allspring Multi-Sector Income Fund | 7

---

Performance highlights (unaudited)

MANAGER’S DISCUSSION

Overview

The Fund’s return based on market value was 7.27% for the six-month period that ended April 30, 2024. During the same period, the Fund’s return based on its net asset value (NAV) was 9.50%. Based on both market value and NAV, the Fund outperformed the Multi-Sector Income Blended Index, which returned 7.21% for the period.

Fed remains patient with inflation still elevated.

The Federal Reserve (Fed) continued its patient and data-dependent approach to monetary policy in the six-month period that ended April 30, 2024 as economic growth was resilient and underlying inflation remained elevated. Core growth was strong, backed by resilience in consumer spending and modestly recovering residential and nonresidential fixed investment, which left recession probabilities near historical average levels.

While U.S. Treasury yields and the U.S. dollar finished the six-month period at similar levels to where they started it, an uncertain and changing inflation outlook led to much volatility from start to finish. Due to rising fiscal deficits, stable growth, and ongoing strength in the labor market, inflation has proved stickier than investors hoped. The Fed expressed desire to see further improvement in inflation data, and the market quickly repriced the number of expected rate cuts from six in mid-January all the way down to roughly one rate cut by period-end.

 

Ten largest holdings (%) as of April 30, 20241
Indonesia, 7.00%, 9-15-2030	2.53
Colombia TES, 5.75%, 11-3-2027	1.94
Hungary, 1.50%, 4-22-2026	1.70
Mexico, 7.75%, 5-29-2031	1.59
International Bank for Reconstruction & Development, 9.50%, 2-9-2029	1.50
Romania, 5.00%, 2-12-2029	1.45
Colombia TES, 7.75%, 9-18-2030	1.39
New Zealand, 3.50%, 4-14-2033	1.35
Mexico, 7.50%, 5-26-2033	1.23
Romania, 3.65%, 9-24-2031	1.18

 

1	Figures represent the percentage of the Fund’s net assets. Holdings are subject to change and may have changed since the date specified.

The “pivot” from a “higher for longer” interest rate environment to one that priced in six future cuts led to exceptionally strong returns in fixed income assets, including high yield. In the six months that ended April 30, 2024, the high yield market returned 8.96%. Financial conditions became easier, and nowhere was this more apparent than in the high yield market. The trailing 12-month default rate declined from 2.7% to 2.3%. High yield bond yields compressed to 8.20% from 9.51%, and high yield credit spreads tightened 127 basis points (bps; 100 bps equal 1.00%) to 318 bps in option-adjusted spread, indicating a higher investor comfort level with risky assets.

Corporate and securitized bond spreads tightened as volatility continued.

For the six-month period that ended April 30, 2024, spreads (the difference in yields over Treasuries) in investment-grade corporate and securitized sectors tightened on average by 37 bps and 21 bps, respectively. High yield bond spreads tightened 136 bps. Lower-rated commercial mortgage-backed securities (CMBS) were among the best-performing sectors, with A-rated securities tightening 167 bps and BBB-

rated securities tightening 189 bps. 

Credit quality as of April 30, 20241

  

1

The credit quality distribution of portfolio holdings reflected in the chart is based on ratings from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit quality ratings apply to the underlying holdings of the Fund and not to the Fund itself. The percentages of the portfolio with the ratings depicted in the chart are calculated based on the market value of fixed income securities held by the Fund. If a security was rated by all three rating agencies, the middle rating was utilized. If rated by two of the three rating agencies, the lower rating was utilized, and if rated by one of the rating agencies, that rating was utilized. Standard & Poor’s rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories. Standard & Poor’s rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bonds, ranging from Aaa (highest) to C (lowest). Ratings Aa to B may be modified by the addition of a number 1 (highest) to 3 (lowest) to show relative standing within the ratings categories. Moody’s rates the creditworthiness of short-term U.S. tax-exempt municipal securities from MIG 1/VMIG 1 (highest) to SG (lowest). Fitch rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Credit quality distribution is subject to change and may have changed since the date specified.

 

Allspring Multi-Sector Income Fund | 9

---

Performance highlights (unaudited)

The high yield sleeve added to BB-rated bonds.

Over the past six months, the high yield sleeve increased its allocations to BB-rated bonds and to the financial services and health care sectors and reduced its allocations to the media and real estate sectors.

The international/emerging market sleeve included changes in duration and diversification.

Changes to positioning within the international/emerging markets sleeve focused on modestly extending duration and diversifying interest rate and currency allocations. The sleeve took on longer-dated positions in Indonesia and India where upward-sloping yield curves offered adequate compensation for the added duration risk. Overall regional allocations were largely unchanged over the reporting period, but within the Latin American position a reduction in Brazil allowed for additional exposure to

Colombia. 

Effective maturity distribution as of April 30, 20241

  

1	Figures represent the percentage of the Fund’s fixed-income securities. Allocations are subject to change and may have changed since the date specified.

Subordinate CMBS and investment-grade financials and industrials contributed.

Within securitized sectors, the Fund’s allocation to CMBS, collateralized loan obligations, and private-label collateralized mortgage obligations (CMOs) contributed to performance. Within corporate sectors, security selection and an overweight to financials were positive. 

The Fund’s high yield sleeve underperformed the ICE BofA U.S. High Yield Index* in the six-month period that ended April 30, 2024. PRA Group, a debt collection company, and Werner FinCo, a building products company, were the sleeve’s best-performing individual credits. An underweight position to DISH Network, a cable and satellite company, also contributed.

Top contributors included Latin American countries and South Africa.

Exposure to the bond markets of Colombia, Mexico, Brazil, and South Africa were excellent value-adds over the reporting period. Performance of the sleeve’s Latin American names was supported by easier domestic monetary policy. In Colombia and Mexico, currency gains versus the U.S. dollar were additional positives to overall returns.

Leverage impact was positive.

The Fund’s use of leverage through bank borrowings had a positive impact on total return performance during this reporting period. As of April 30, 2024, the Fund had approximately 30% in leverage as a percent of total assets.

Duration and curve positioning detracted.

The Fund’s duration underweight and yield curve positioning relative to the index detracted from performance as Treasury yields declined

0.05%–0.39% over the period with the yield curve flattening. 

Geographic allocation as of April 30, 20241

  

1	Figures represent the percentage of the Fund’s long-term investments. Allocations are subject to change and may have changed since the date specified.

High yield detractors included Enviva and Asurion.

Enviva, a manufacturer of wood pellets that utilities burn in lieu of coal, and Asurion, a provider of wireless handset insurance services, were the two worst-performing individual holdings.

Developed market bonds trailed emerging markets.

Developed market sovereign bonds generally underperformed emerging market sovereign bonds over the reporting period. The sleeve’s positions in New Zealand and the United Kingdom managed modest absolute returns but were detractors on a relative basis. On the currency front, positions in the Brazilian real and Indonesian rupiah detracted, with the currencies weaker than the U.S. dollar.

*

ICE BofA U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high yield bonds. The index tracks the performance of high yield securities traded in the U.S. bond market. Returns shown are net of transaction costs beginning on July 1, 2022. You cannot invest directly in an index. Copyright 2024. ICE Data Indices, LLC. All rights reserved.

 

10 | Allspring Multi-Sector Income Fund

---