Neuberger Berman has launched a Ucits strategy focused on the non financial corporate hybrid debt asset class.
The Neuberger Berman Corporate Hybrid fund is a sub-fund of the Irish-Domiciled Ucits fund umbrella, Neuberger Berman Investment Funds plc.
It launched on 19th November with initial seed capital of $21m (€19.6m). It will be registered for sale shortly across the UK, Europe and Asia.
The Neuberger Berman Corporate Hybrid fund is run by investment grade credit portfolio managers Julian Marks and David Brown.
The group currently manages about $500m in dedicated corporate hybrid mandates, primarily for Japanese institutional clients.
“Hybrid bonds issued by well-known, investment grade corporates, have a significantly higher yield than senior bonds from the same issuers. Accounting for around 3% of Euro Investment Grade credit indices, liquidity is strong in corporate hybrid bonds and interest in the asset class is increasing,” the company said.
Julian Marks, Global Credit Portfolio Manager at Neuberger Berman explains, “The hybrid universe offers an opportunity to access investment grade names whilst earning returns commensurate with the high yield market. The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment.”
Marks continues, “We believe these bonds are currently trading on average over 100bps wide of fair value. Also, we believe the large amount of new issuance is likely to continue coming at a discount, providing an additional source of return.
“However, due to the relatively complex nature of these instruments, investing in corporate hybrids requires specific expertise, including a thorough credit assessment and an in-depth analysis of the issue features, in order to reach a conclusion as to a fair valuation.”