Portfolio Update - July 2022

RNS Number : 0928W

NB Global Monthly Income Fund Ltd

16 August 2022

 

NOT FOR RELEASE, DISTRIBUTION OR PUBLICATION, DIRECTLY OR INDIRECTLY, TO U.S. PERSONS OR INTO OR IN THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN.

16^th August 2022

NB Global Monthly Income Fund*

Monthly Commentary & Portfolio Update

29^th July 2022:

Key statistics

NAV (GBP)	GBP 0.8363
Current Portfolio Yield**	8.40%
Number of Investments	238
Number of Issuers	184

Asset allocation:

	Global High Yield:		23.77%
	Global Floating Rate Loans:		27.12%
Total Traditional Credit:			50.89%
	Private Debt:		26.26%
	CLO Mezzanine Debt:		11.11%
	Special Situations:		11.74%
Total Alternative Credit:			49.11%

Credit rating breakdown: as at 29 July (excluding cash), the portfolio was invested primarily in B (47.56%), BB (10.09%) and CCC (36.25%) rated investments ^.

Market Update

Non-investment grade credit ended the month of July in positive territory with a strong rebound driven by better than expected earnings results, the potential for less aggressive central bank tightening cycles and a lack of supply given lower new issuance.  While 2022 has seen its share of volatility, loan prices recovered from recent lows. Weighted average bid prices on the U.S. loan market peaked at $99.08 in late January 2022, troughed at $91.75 on July 6th and ended the month at $93.64 with the rally continuing into August. In July, the U.S. high yield market had the strongest returns since October 2011 and saw significant spread tightening with yields ending the month back under 8%. U.S. high yield spreads tightened by 94 basis points which is the largest decline in spreads in one month since 2020. Despite the slowing real growth in the U.S. and Europe as a result of higher inflation, issuer fundamentals have supported the recent price action in non-investment grade credit markets.  While managements remained somewhat guarded in their forward guidance, issuer operating results exceeded expectations. Free cash flow, interest coverage and leverage ratios remained in relatively healthy ranges with the default outlook for 2022 and 2023 still well below the long-term average.

In July, U.S. senior floating rate loans-measured by the S&P/LSTA Leveraged Loan Index (the "S&P LLI")-returned 2.14% with the lowest rated loans underperforming as the BB, B and CCC rated segments of the index returned 2.27%, 2.30% and -0.28%, respectively. Year to date, the S&P LLI returned -2.51% with the lowest rated loans underperforming as the BB, B and CCC returned -1.08%, -2.69% and -8.84%, respectively.  The LL100, a measure of the largest, most liquid issuers, returned 3.10% in the month and -2.55% year to date. The European Leveraged Loan Index (the "ELLI") returned 2.56% in July and -5.14% year to date, excluding currency effects.  The second lien loans returned 0.01%% in July and -5.35% year to date.

The global high yield market had very strong returns and saw significant spread tightening with yields ending the month of July just under 8%. The ICE BofA Global High Yield Constrained Index finished the month with a return of 4.95%% and -10.66% year to date. In July, returns across credit ratings saw underperformance versus the index in the lowest credit tier. The BB, B, CCC & lower rated categories of the ICE BofA Global High Yield Index returned 5.16%, 4.98%, and 3.47%, respectively.  Year to date, the BB, B, CCC & lower rated categories of the ICE BofA Global High Yield Index returned -10.23%, -10.75%, and -13.38%, respectively.

CLO debt spreads moved tighter month-over-month after hitting wides of the year in mid-July, after global recessionary fears waned as investors became more optimistic on a dovish tilt in central bank policies amidst weaker economic data, combined with better than expected corporate earnings in the midst of the current high inflation environment.  Secondary non-investment grade CLO trading volumes declined 40% month-over-month as the market rally kept potential selling volume on the sidelines.  The CLO BB index gained 1.53% during the month and declined -5.83% year to date.

Default rates remained just above all-time lows across non-investment grade credit which is consistent with healthy balance sheets and positive free cash flow growth. Our outlook for defaults also remains benign with well-below average default rates expected in 2022 and 2023. Non-investment grade credit, especially given its lower duration profile and attractive yields, could likely continue to see solid investor demand.

In our view, non-investment grade yields are compensating investors for the below average default outlook, will continue to provide durable income and are attractive compared to other fixed income alternatives. The tightening of financial conditions and ongoing concerns over inflation continue to create incremental volatility, but as real growth slows and supply chains normalize, inflationary pressures are likely to wane. That said, our analysts continue to focus on the outlook for issuer margins. Healthy consumer and business balance sheets, growing nominal wages and solid job growth should remain supportive for issuer fundamentals. Our global research team has also been closely monitoring the investment thesis for each issuer in the portfolio given the impacts related to rising cost pressures exacerbated by the ongoing conflict in Eastern Europe and a tighter labor market in the U.S. While supply chain discontinuities are moderating as a result of slower demand, we remain focused on how any disruptions within some sectors might impact individual issuers. Even with the heightened uncertainty, commodity price swings and central bank tightening, which is resulting in short-term volatility, we believe our bottom-up, fundamental credit research focused on security selection while seeking to avoid credit deterioration and putting only our "best ideas" into portfolios, position us well to take advantage of the increased volatility.

Portfolio Positioning

The overall Fund exposure to floating rate assets is at 67%, with an average duration of 1.55 years. Credit markets rallied strongly in July, despite concerns regarding inflation, supply chain disruption, energy security and economic growth persisting. This was due to investor positioning having become very bearish in the previous month, and with outflows falling below market expectations, many investors sought to put higher than average cash balances to work ahead of the summer break. In the context of illiquid market conditions with low street inventory and little primary issuance, this conspired to squeeze prices higher.  All trading activity required to fund the Cash Exit Facility Offer announced on 1 June 2022 was conducted in July with the vast majority (over 95%) being completed by 15 July 2022. Investors should note that the portfolio sectoral weightings currently are not materially different from the pre-tender portfolio, and any changes have been driven by investment considerations and not for reasons of liquidity.  The move higher in allocation to Special Situations from 9.3% to 11.7% as of 29 July 2022 was in large part explained by the impact of market movements which resulted in certain instruments being reclassified into that category.  Where relative value changes made sense we took advantage of the market strength to rotate holdings, the exposure to single B and CCC rated credit rising at the margin as a result.

As primary markets in Europe slowly returned to life, we participated in a first-lien EUR term loan from Optigroup, which performed strongly on the break having been priced at a material discount to secondary. Optigroup is a distribution business focused on predominately defensive markets in the facility, safety & food service, packaging and medical sectors. We like the business given its strong market shares and free cash flow profile, together with the high value of the intermediation service they provide to their predominately SME customer base.

To access the July 2022 Factsheet, please click here http://www.rns-pdf.londonstockexchange.com/rns/0928W_1-2022-8-15.pdf.

The Fund's website can be found at the following address: www.nbgmif.com

* Effective September 9th, 2020, the NB Global Floating Rate Income Fund Limited was renamed to the NB Global Monthly Income Fund Limited.

For more information, please refer to here.

** Current Portfolio Yield is a market-value weighted average of the current yields of the holdings in the portfolio, calculated as the coupon (base rate plus spread) divided by current price. The calculation does not take into account any Fund expenses or sales charges paid, which would reduce the results. The Current Yield for the Fund will fluctuate from month to month. The Current Yield should be regarded as an estimate of the Fund's rate of investment income, and it may not equal the realised distribution rate for each share class. You should consult the Fund's prospectus for additional information about the Fund's dividends and distributions policy. Past performance is not a reliable indicator of current or future results.

-ENDS-

For further information, please contact:

Neuberger Berman Europe Limited (Manager) Elizabeth Papadopoulos	[phone]
Numis Securities Limited (Broker) Hugh Jonathan Matt Goss	[phone]
Praxis Fund Services Limited (Company Secretary) Matt Falla Gemma Woods	[phone]
KL Communications (PR) Charles Gorman Charlotte Francis	[phone]

Background Information

The Company is a registered closed-ended investment company incorporated in Guernsey. It is managed by Neuberger Berman Europe Limited, which has delegated certain of its responsibilities and functions to the AIFM, Neuberger Berman Investment Advisers LLC, both of which are indirect wholly owned subsidiaries of Neuberger Berman Group LLC.

Neuberger Berman, founded in 1939, is a private, independent, employee-owned investment manager. The firm manages a range of strategies-including equity, fixed income, quantitative and multi-asset class, private equity, real estate and hedge funds-on behalf of institutions, advisors and individual investors globally. With offices in 25 countries, Neuberger Berman's diverse team has over 2,300 professionals.

For seven consecutive years, the company has been named first or second in Pensions & Investments Best Places to Work in Money Management survey (among those with 1,000 employees or more). In 2020, the PRI named Neuberger Berman a Leader, a designation awarded to fewer than 1% of investment firms for excellence in Environmental, Social and Governance (ESG) practices. The PRI also awarded Neuberger Berman an A+ in every eligible category for our approach to ESG integration across asset classes. The firm manages $460 billion in client assets as of December 31, 2021. For more information, please visit our website at www.nb.com .

RISK CONSIDERATIONS

Market Risk : The risk of a change in the value of a position as a result of underlying market factors, including among other things, the overall performance of companies and the market perception of the global economy.

Liquidity Risk: The risk that the Fund may be unable to sell an investment readily at its fair market value. In extreme market conditions this can affect the Fund's ability to meet redemption requests upon demand.

Credit Risk: The risk that bond issuers may fail to meet their interest repayments, or repay debt, resulting in temporary or permanent losses to the Fund.

Interest Rate Risk: The risk of interest rate movements affecting the value of fixed-rate bonds.

Counterparty Risk: The risk that a counterparty will not fulfil its payment obligation for a trade, contract or other transaction, on the due date.

Counterparty Risk: The risk that a counterparty will not fulfil its payment obligation for a trade, contract or other transaction, on the due date.

Operational Risk: The risk of direct or indirect loss resulting from inadequate or failed processes, people and systems including those relating to the safekeeping of assets or from external events.

Derivatives Risk: The Fund is permitted to use certain types of financial derivative instruments ("FDI") (including certain complex instruments) which can give rise to particular risks, including market risk, liquidity risk and counterparty credit risk. This may increase the Fund's leverage significantly which may cause large variations in the value of your share.

Currency Risk: Investors who subscribe in a currency other than the base currency of the Fund are exposed to currency risk. Fluctuations in exchange rates may affect the return on investment.

The past performance shown is based on the share class to which this factsheet relates. If the currency of this share class is different from your local currency, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.

IMPORTANT INFORMATION

Source of all data and charts (unless stated otherwise): Neuberger Berman Europe Limited, Bloomberg and Blackrock Aladdin.

This document has been issued by NB Global Monthly Income Fund Limited (the "Company"), and should not be taken as an offer, invitation or inducement to engage in any investment activity and is solely for the purpose of providing information about the Company. This document does not constitute or form part of, and should not be construed as, any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any share in the Company or securities in any other entity, in any jurisdiction. This product is only suitable for institutional, professional and professionally advised retail investors, private client fund managers and brokers who are capable of evaluating the merits and risks of the product and who plan to stay invested until the end of the recommended holding period and can bear loss of capital. An investor with reasonable knowledge of loans and alternative credit would need to be assessed by the advisor or distributor to establish suitability for this product.

Full product details, including a Key Information Document, are available on our website at www.nbgmif.com .

Due to the inherent risk of investment in the debt market particularly related to alternative credit, it is expected that a qualified investor would be able to understand the risks in such security types and the potential impact of investing in the product. This product is designed to form part of a portfolio of investments. 

The Company is a closed-ended investment company incorporated and registered in Guernsey and is governed under the provisions of the Companies (Guernsey) Law, 2008 (as amended), and the Registered Collective Investment Scheme Rules 2008 issued by the Guernsey Financial Services Commission ("GFSC"). It is a non-cellular company limited by shares and has been declared by the GFSC to be a registered closed-ended collective investment scheme. The Company's shares are admitted to the Official List of the UK Listing Authority with a premium listing and are admitted to trading on the Premium Segment of the London Stock Exchange's Main Market for listed securities.

Neuberger Berman Europe Limited is authorised and regulated by the Financial Conduct Authority and is registered in England and Wales, at The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ.

This document is presented solely for information purposes and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. We do not represent that this information, including any third-party information, is complete and it should not be relied upon as such. Any views or opinions expressed may not reflect those of the Company as a whole. All information is current as of the date of this material and is subject to change without notice. No part of this document may be reproduced in any manner without prior written permission of the Company. 

An investment in the Company involves risks, with the potential for above average risk, and is only suitable for people who are in a position to take such risks. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of any investment, and should consult its own legal counsel and financial, actuarial, accounting, regulatory and tax advisers to evaluate any such investment. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. Investment in the Company should not constitute a substantial proportion of an investor's portfolio and may not be appropriate for all investors. Diversification and asset class allocation do not guarantee profit or protect against loss.

Past performance is not a reliable indicator of current or future results . The value of investments may go down as well as up and investors may not get back any of the amount invested. The performance data does not take account of the commissions and costs incurred on the issue and redemption of units.

The value of investments designated in another currency may rise and fall due to exchange rate fluctuations in respect of the relevant currencies. Adverse movements in currency exchange rates can result in a decrease in return and a loss of capital.

Tax treatment depends on the individual circumstances of each investor and may be subject to change, investors are therefore recommended to seek independent tax advice.

This document, and the information contained therein, is not for viewing, release, distribution or publication in or into the United States, Canada, Japan, South Africa or any other jurisdiction where applicable laws prohibit its release, distribution or publication, and will not be made available to any national, resident or citizen of the United States, Canada, Japan or South Africa. The distribution of this document in other jurisdictions may be restricted by law and persons into whose possession this document comes must inform themselves about, and observe, any such restrictions. Any failure to comply with the restrictions may constitute a violation of the federal securities law of the United States and the laws of other jurisdictions.

The Company's shares have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any state or other jurisdiction of the United States. The shares may not be offered, sold, resold, pledged, delivered, distributed or otherwise transferred, directly or indirectly, into or within the United States, or to, or for the account or benefit of, US persons (as defined in Regulation S under the Securities Act). No public offering of the shares is being made in the United States.

The Company has not been and will not be registered under the US Investment Company Act of 1940, as amended (the "Investment Company Act") and, as such, holders of the shares will not be entitled to the benefits of the Investment Company Act. No offer, sale, resale, pledge, delivery, distribution or transfer of the shares may be made except under circumstances that will not result in the Company being required to register as an investment company under the Investment Company Act. In addition, the shares are subject to restrictions on transferability and resale in certain jurisdictions and may not be transferred or resold except as permitted under applicable securities laws and regulations. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdictions.

The "Neuberger Berman" name and logo are registered service marks of Neuberger Berman Group LLC.

© 2022 Neuberger Berman Group LLC. All rights reserved.

 

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