NB Global Monthly Income Fund (NBMI) offers a high yield (5.5%), paid monthly from a portfolio split between conventional and alternative credit. The flexible mandate was implemented in September 2020 following a shareholder vote which saw the trust change its name from NB Global Floating Rate Income Fund.
NBMI is managed by a team of senior investment professionals at Neuberger Berman, who work on a fixed income desk that runs over $145bn in AUM, including $45bn in sub-investment grade. For NBMI, as well as investing in conventional fixed and floating rate instruments, the team invest in special situations, CLOs and private debt. These areas are only available to specialised institutional investors with deep resources. The illiquidity and complexity of the deals earns a higher yield, as we discuss under dividend.
NBMI’s main source of yield is credit, and as such it has some cyclical exposure. As we discuss in the performance section, the managers are bullish on the outlook for the US economy, in particular, and therefore for credit spreads. While the main economic exposure is to the US, the trust also invests in European debt, but hedges all investments back into sterling. The duration is designed to be kept low, and the high level of exposure to floating rate investments (60%-80% of the portfolio) means the trust offers some protection from rising interest rates.
NBMI has remained on a persistent discount since the transition to a new strategy, and the discount is currently 11.3%. Buybacks have been paused, but the board has committed to a tender offer for up to 20% of the shares each six months from June 2022 and to consider winding up the trust if it falls below £150m net assets.
NBMI is an attractive source of high income which should, by virtue of its flexible mandate, be able to better maintain a higher yield if conventional credit markets rally. We think it could be an interesting investment to consider for those who want a high yield but who are prepared to accept greater liquidity and complexity risk. Neuberger Berman has a huge team of credit analysts and other resources which we think means it should be able to manage these risks well. Paying a monthly dividend is relatively rare, and could be particularly appealing to those living off their income.
The discount has been persistent since the change of mandate and over-subscribed tender offer. However, for investors with a medium-term view, the 20% tender offers to be held every six months from June 2022, and the commitment to consider winding up the trust if net assets fall below £150m, give strong support on the downside.
US Treasury yields have been rising as its economy reopens and economic activity surges. NBMI’s low duration means this has had relatively little impact on NAV. However, as credit spreads rally – on the good economic news – the trust stands to do well. NBMI would do best in an economic recovery in which credit risks fall and companies outgrow their debt. We note this is the managers’ reading of the current situation and which they believe is conducive to their portfolio’s success. However, the economic sensitivity means the trust would do less well if the economy and markets turned for the worse and would not provide the protective performance of treasuries or investment grade corporates.
|Highly attractive yield, particularly given low interest rate environment
||To generate high yield needs to take credit risk which brings economic sensitivity
|Deep resources across the fixed income teams should give advantage in such a broad and flexible mandate
||Hedging costs can vary depending on interest rate differentials
|Discount is wide and has support thanks to regular tender offers and potential for wind-up if tender offers shrink the trust
||Short track record under new mandate