NB Global Corporate Income Trust (ASX: NBI) listed on the ASX on 26 September 2018, raising $413m. To further increase market liquidity and satisfy latent investor demand the Manager has completed one secondary capital raisings since listing, with a second capital raising being withdrawn due to market conditions. The portfolio is managed by Neuberger Berman Australia Ltd (the “Manager”), a US based asset manager with over US$460b AUM. The Trust seeks to provide unitholders with a consistent and stable monthly income stream, while achieving an attractive level of total return over a full market cycle.
The Trust seeks to achieve this objective through an investment in high yield bonds issued by companies located globally with the portfolio allocated approximately 60% to U.S. companies, 20% to European companies and 20% to Emerging Market companies (hard currency denominated bonds only). We note that these regional exposures may change over time reflecting changes in the global high yield market itself as well as the Manager’s tactical allocation process. The Manager’s investment team is highly experienced and its various investment portfolios constructed based on a long-standing, rigorous and repeatable fundamental investment approach, that ultimately seeks to understand the financial strength
of a corporate bond issuer. The portfolio is diversified by security, issuer, industry, geography and credit quality. From a credit quality perspective, the focus is on sub-investment grade bonds rated between B and BB, with opportunistic use of BBB and CCC credit tiers. The Manager typically avoids corporates that have previously defaulted and workout issues.
IIR has reaffirmed its Recommended Plus rating for NBI. NBI is the only actively managed listed managed investment on the ASX that focuses solely on global high yield bonds. The Trust has met its target yield objective since listing. The NAV and unit price experienced heightened volatility throughout 2020 as a result of the market shock resulting from the COVID-19 pandemic and NAV volatility is expected to be heightened in the short-to-medium term given the current inflationary environment and forecast interest rate rises. The price of bonds have an inverse relationship with interest rates which will drive this volatility. However, its important to note that the portfolio is actively managed and therefore the current environment will present investment opportunities as well. The Trust has traded at a discount to NAV since the market shock in 2020 and the recent market volatility has seen the discount expand. The Trust has a unit buy-back in place however we believe performance and unitholder engagement will be the key drivers to managing the discount. In the event the Responsible Entity and the Manager can manage the discount, the discount offers the potential for added capital gains and an enhanced yield. The portfolio has increased its exposure to bonds rated CCC and below with 25.8% of the portfolio allocated to bonds rated CCC and below at 31 March 2022, significantly above the benchmark weighting. The increased allocation to this rating category is driven in part by the Manager identifying attractive risk-adjusted opportunities, however we note the increased exposure increases the inherent risk of the portfolio.
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