Neuberger Berman Global High Yield Fund Update

May 24, 2024

Neuberger Berman Global High Yield Fund (the “Trust”), formerly NB Global Corporate Income Trust, provides exposure to a highly diversified portfolio of global high yield bonds with the dual objective of delivering a consistent and stable monthly income stream while achieving an attractive level of total return over a full market cycle and outperforming the benchmark, after fees and costs, on a rolling 3-year basis. The portfolio is managed by Neuberger Berman Australia Ltd (the “Manager”), a US based asset manager with ~US$474b AUM. The Trust was structured as a listed investment trust (LIT), listing on the ASX in September 2018. At a unitholder meeting in February 2024, unitholders overwhelmingly voted in favour or delisting from the ASX and operating the Trust as an unlisted unit trust with the Trust delisting on 15 May 2024. The performance of the Trust has been negatively impacted by the macroeconomic environment. The inflationary environment led to one of the fastest pace cash rate rises by central banks globally. With high yield bonds being predominantly fixed rate, this resulted in high yields bond prices experiencing significant declines in 2022 and investors allocating to other asset classes. This was the key driver of the discount at which the Trust traded and the efforts of the Manager, including a return of capital, did not make a dent on the trading price of the Trust in relation to the NAV. The unlisted Trust provides daily liquidity, however to facilitate the orderly transition to the unlisted structure there will be a transition fee applied to redemptions during the 12-months post delisting (see details below). The unlisted trust structure enables investors to enter and exit at NAV (after the transition period), subject to a buy/sell spread of 0.2%/0.2%. This removes the impediment that investors have experienced in the listed vehicle and was the key reason for unitholders voting in favour of the change in structure.

Our Recommended Plus rating for the Neuberger Berman Global High Yield Fund remains unchanged. We continue to hold the Manager in high regard and believe during a difficult landscape for high yield bonds, actively managed portfolios are preferred to broader market exposure to protect from downside risk. The Manager has one of the larger teams in the market with a focus on credit selection through bottom-up, fundamental company analysis. The detailed analysis provides the ability for the Manager to avoid defaults and take advantage of improved risk-adjusted returns where the Manager’s internal
rating differs form the rating assigned by a rating agency. The focus on credit quality is highlighted by the number of defaults experienced by the portfolio since inception compared to the broader market – 6 for the Trust versus 362 for the broader market. The Trust is designed as an income focused product. While there may be volatility in the price of bonds, the Manager invests with the intent of holding a bond to maturity, receiving the face value of the bond at maturity plus the interest paid along the way. The slowing of cash rate rises globally and the expectation that cash rates are close to peaking has seen high yield bond prices move back towards par value however they still trade at a discount providing the potential for some capital gains in those bonds acquired below par value. An uncertain macroeconomic environment is expected to result in continued volatility in the market. Given the uncertain economic environment and the expectation of slowing economic growth, the Manager has positioned the portfolio to protect from downside risk, increasing exposure to higher quality non-investment grade credit with a distinct reduction in exposure to companies rated CCC and below over the last two years. The main risk to the portfolio and high yield bonds more broadly would be a deep recession with spreads widening significantly. This scenario remains a possibility but is not the base case scenario for the Manager. In most scenarios, the Manager sees a relatively benign credit environment.

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