Portfolio Update - Sept 2022

RNS Number : 9927C

NB Global Monthly Income Fund Ltd

17 October 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.

17^th October 2022

NB Global Monthly Income Fund

Monthly Commentary & Portfolio Update

30^th September 2022:

Key statistics

NAV (GBP)	GBP 0.8054
Current Portfolio Yield**	9.20%
Number of Investments	235
Number of Issuers	180

Asset allocation:

	Global High Yield:		20.48%
	Global Floating Rate Loans:		25.72%
Total Traditional Credit:			46.20%
	Private Debt:		26.55%
	CLO Mezzanine Debt:		11.22%
	Special Situations:		16.03%
Total Alternative Credit:			53.80%

Credit rating breakdown: as at 30 September (excluding cash), the portfolio was invested primarily in B (46.78%), BB (11.91%) and CCC (35.62%) rated investments ^.

Market Update

September was a challenging month for non-investment grade credit markets with returns broadly negative. The drawdowns were driven by increasingly hawkish central banks and rising risk of recession especially after Federal Reserve Board Chair Powell mentioned the word "pain" several times in his most recent statements and indicated the Fed is more willing to accept a weaker labour market as it moves into a "restrictive range" on target Fed funds. U.S. 10-Year Treasury yields ended the month at 3.83%, rising 95 basis points since the end of the second quarter when the yield stood at 2.88%. Also, news that the Bank of England had to intervene in the long-end of the gilt curve to restore market functioning fuelled incremental quarter-end volatility. UK gilts experienced a significant yield increase over the quarter moving from 2.10% at the end of the second quarter to 4.08% as of September 30. Despite the fact that trailing 12-month default rates have moved up from the lows, issuer fundamentals of free cash flow, interest coverage and leverage have remained in relatively favourable ranges with the default outlook for 2022 and 2023 still below the long-term average.

In the month, U.S. senior floating rate loans-measured by the Morningstar LSTA U.S. Leveraged Loan Index (the "LLI")-returned -2.27% with the lower rated tiers underperforming as the BB, B and CCC rated segments of the index returned -1.19%, -2.77% and -2.36%, respectively. In the third quarter, the overall loan index saw positive returns of 1.37% with BB's up 2.45%, and single-B's up 1.18%, outperforming CCCs which saw negative returns of -1.72%. Year to date, the LLI returned -3.25% with lower rated loans underperforming as the BB, B and CCC returned -0.90%, -3.76% and -10.16%, respectively.  The LL100, a measure of the largest, most liquid issuers, returned -2.85% in the month, 1.29% for the quarter and -4.26% year to date. The Morningstar European Leveraged Loan Index (the "ELLI") returned -3.49% in September, 1.25% for the quarter and -6.34% year to date, excluding currency effects. The second lien loan index returned -3.02% in the month, -1.97% in the third quarter and -7.22% year to date. Notwithstanding the macro volatility, the loan market has been relatively resilient compared to other asset classes over the month, quarter and year to date periods.

The ICE BofA Global High Yield Constrained Index finished the month with a return of -4.21%, -1.02% in the third quarter and -15.74% year to date (Hedged USD). In September, returns across credit ratings saw lesser drawdowns in the middle-rated credit tiers as the BB, B, CCC & lower categories of the ICE BofA Global High Yield Index returned -4.26%, -4.03%, and -4.76%, respectively. Year to date, the BB, B, CCC & lower rated categories of the ICE BofA Global High Yield Index returned -15.71%, -15.74%, and -16.51%, respectively.

CLO debt spreads moved wider in the month, as the market rally from July into mid-August-underpinned by market views of a more dovish Fed and better than expected corporate earnings-was reversed following hawkish comments from Fed Chairman Powell given persistently elevated inflation. Secondary non-investment grade CLO trading volumes declined 22% quarter-over-quarter with investors reassessing selling needs as CLO debt spreads reached local wides in 2022. The CLO BB index returned -6.81% in September, -2.56% in the third quarter and -9.63% year to date.

Although default rates have moved up modestly from earlier in the year, they remain low across non-investment grade credit which is consistent with healthy balance sheets and positive free cash flow growth. Our outlook for defaults also remains relatively 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 see a re-emergence of investor demand as valuations have become very attractive on an absolute and relative basis.

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. While the tightening of financial conditions, still-elevated inflation and challenging news out of Europe has been creating incremental volatility, real growth is slowing and most supply chains have normalized. That said, our analysts remained focused on the outlook for issuer margins even though some input cost pressures appear to be lessening. Healthy consumer and business balance sheets, growing nominal GDP 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 margin impacts related to input cost pressures exacerbated by the ongoing conflict in Eastern Europe. While inventories are building as a result of slowing demand, we remain focused on sector dynamics and idiosyncratic risks to individual issuers. Even with the heightened uncertainty of commodity prices, central bank tightening and negative news flow out of Europe, 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 unchanged at 67%, with an average duration of 1.45 years. As government bond yields continued to rise on the back of heightened inflationary concerns, and investors grappled with a range of other challenges, including political instability in the UK and a flare up of tensions in Ukraine, credit markets weakened in September. The technical picture in the leveraged finance space was negative, investors persistently being hit with outflows, which in concert with reduced street balance sheet saw liquidity diminished. Decompression was also evident, as accounts sought to reduce exposure to lower rated and cyclical sectors, with several negative idiosyncratic situations resulting in increased price dispersion. During the month our exposure to single B rated holdings fell, whilst the weight in BB rated names increased, as did our weight in private debt.

As activity in the primary market remained highly subdued, we did nevertheless add to selected lines in secondary, including the unsecured bonds of energy group Harvest Midstream following the announcement of a strong set of earnings. Harvest operates midstream assets primarily in mature basins, and benefits from a history of extending the useful life and productivity of conventional assets, substantial free cash flow generation, a sensible leverage profile and sympathetic covenant structure.

To access the September 2022 Factsheet, please click here http://www.rns-pdf.londonstockexchange.com/rns/9927C_1-2022-10-14.pdf.

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

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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