Neuberger Berman Global Corporate Income Trust (ASX Code: NBI)

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OVERVIEW
NB Global Corporate Income Trust (‘the Trust’ or NBI) listed on the ASX on 26 September
2018, raising $413m, far exceeding the minimum raise of $150m and the target raise of
A$250m+. On May 14 2019, the Manager announced a secondary capital raise to increase
market liquidity and satisfy latent investor demand, as well as to minimise the potential for
NBI to trade at a sustained premium to NTA. The offer of new units will comprise both an
entitlement offer for existing unitholders and a public shortfall offer. Importantly, new units
will be issued at parity to NTA (net of accrued distributable income), removing dilution risk
for existing unitholders that chose not to participate in the entitlement offer. The Trust is
managed by Neuberger Berman (the ‘Investment Manager’) and its 55 person strong global
non-investment grade credit team. The named manager of the Trust is Neuberger Berman’s
wholly owned Australian subsidiary, Neuberger Berman Australia Pty Limited (the ‘Manager’).
The Trust provides exposure to high yield bonds issued by companies located globally and is
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 Investment Manager’s tactical allocation process. Neuberger Berman’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 individual issues, industries, geographies and credit quality tiers. From a
credit quality perspective, the focus is on non-investment grade positions between B and BB,
with opportunistic use of BBB and CCC credit tiers and avoidance of defaulted and workout
issuers.
INVESTOR SUITABILITY
The Trust seeks to pay a stable and consistent monthly distribution equivalent to at least
5.25% p.a. and to generate a moderately accretive NAV over the long-term. Since its ASX
listing, the Trust has successfully met its income objective, notwithstanding 4Q 2018 being a
particularly volatile quarter. The Investment Manager seeks to do so with a strong emphasis
on capital preservation and downside risk mitigation and, historically, has delivered on this
performance objective. More broadly, the Trust has the ability to fill a gap in many domestic
retail investor portfolios. For many retail investors, the income component of the portfolio
tends to be both domestically focused and often significantly equity biased, with a degree
of hybrids to achieve an income stream. In our view, a fundamental benefit of the Trust’s
investment strategy is that many domestic investors may be able to benefit from at least a
comparable returns profile but in doing so significantly diversify the income component of
their portfolio by geography, industry and credit quality tier. Investors should note that the
Trust’s portfolio predominantly comprises non-investment grade bonds. By its very nature,
non-investment grade bonds tends to have a higher probability of default and this risk
tends to cluster around specific events / economic environments. The Trust may not suit all
investors and that potential investors should understand the risks of high yield corporate
debt.
RECOMMENDATION
IIR maintains its “RECOMMENDED PLUS” rating to the NB Global Corporate Income
Trust. IIR has conviction in the Investment Manager’s ability to at least achieve the stated
investment objectives over the foreseeable future. This is based on a comprehensive, proven
and repeatable investment process, a broad and highly qualified investment team, strong
risk-management processes, and a long-term track-record of generating alpha (primarily by
mitigating downside risks in less benign market environments). We believe the investment
processes, with a strong emphasis on downside risk mitigation, accords well with the
investment objective of stable and consistent income and a moderately accretive NAV.