Portfolio Update

RNS Number : 5392O

NB Global Floating Rate Income Fund

12 October 2012

 



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

NB Global Floating Rate Income Fund

Portfolio Update

NB Global Floating Rate Income Fund Limited (the "Fund") is a FTSE 250-listed, closed-ended investment company. The Fund currently produces an annualised net yield per share in the region of 5% on the issue price, plus some capital appreciation, whilst preserving investors capital and giving protection from rising interest rates.

The Fund's managers generate this yield by investing in a global portfolio of senior secured corporate loans with selective use of senior bonds, diversified by both borrower and industry. The Fund is managed by three accomplished portfolio managers backed by a credit team of over 30 investment professionals.

The Portfolio, as at 30 September 2012:

·     was split 93.34% USD, 2.39% EUR and 2.66% GBP

·     had 6.73% allocated to bonds out of the maximum 20% allowable

·     was invested primarily in B (54.55%) and Ba (39.20%) rated investments¹

Market Environment²

The loan markets in both the US and Europe continued to perform well in the third quarter. This was driven by global Central Bank stimuli, which resulted in the "risk on" trade coming to the fore once again.

As investors continued their search for yield, the US loan market saw strong demand. This was particularly evident from new Collateralised Loan Obligation (CLO) vehicles, which have generated over $30bn of flows into the loan market this year. We also began to see a pick up in retail demand throughout Q3 which we expect to continue into Q4. Additionally, the high yield asset class attracted $11bn of flows³ in Q3 and has seen over three times that amount year to date, driving bond yields to all-time lows, leaving them now within 50bp of loan yields. This narrowing of spreads has driven many high yield managers to the loan market where they are able to move up in the capital structure without sacrificing much yield. To meet this demand issuance levels are also high. For the year to date we have seen $210bn of institutional deals in the US, which is in line with last year and, with market indicators far more positive this time around, US issuance appears strong for the rest of the year. Europe continues to lag, with just €10bn (against €19bn year to date in 2011) of institutional issuance seen year to date and a paltry €2bn in Q3. Whilst we have seen all the deals that have been launched in Europe most are still not of sufficient quality to pass our investment criteria and we have declined the majority shown to us.

The resulting performance of the market is as follows: year-to-date, the US S&P/LSTA Loan Index returned 8.12% (3.43% in Q3) with the single B rating segment (where the portfolio continues to have its largest exposure and over-weight) performing strongly once again, with a return of 9.35% (3.40% in Q3). European performance was similarly strong, with the S&P European Leveraged Loan Index (ELLI) up to 7.33% year to date with 2.28% generated in Q3. Given both the increased market demand and more positive macro news, new issue yields did tighten slightly during the quarter, with BB now pricing between 4.0% - 4.5% and single Bs around the 5.5% - 6.5% level. Our view on default rates for 2012 is sustained, with the US below 2.0% and Europe at 7.0%, with current trailing 12m default rates of 1.00% and 6.2% respectively. The portfolio has not had any defaults since inception.

Portfolio Management

The most significant changes we have made to the portfolio since our last quarterly factsheet relate to its more volatile components. Specifically, we have reduced both our bond positions, from 11.6% at the end of Q2 to 6.7% at the end of September, due to the previously mentioned spread narrowing between loans and bonds. We have also reduced our non-US exposure, with our European assets down from 7.4% to 5.1% over the same period. This is due do the lack of new supply and the fact that many of our holdings had experienced significant price appreciation and we sold some that were trading at levels above where we had purchased them.

Outlook

It will come as no surprise that our investment focus over the final quarter will remain in the US primary market. The current pipeline of deals is very healthy at just over $35bn. Most importantly, we believe US companies remain fundamentally strong and continue to report decent earnings. The fact that the European new issue market is effectively closed for the remainder of the year compounds our view. Whilst secondary opportunities remain, these are more limited at present given the market rally we have seen, but we continue to monitor the situation and will still continue reducing the more volatile segments of our portfolio and taking profits on some lower yielding assets that we bought at a discount. Although our focus is on the primary market we are well aware that market conditions can change quickly, and cognisant of the fact that if we do see a period of volatility in the run up to year end, that this is likely to present significant secondary buying opportunities.

Source: BNP Paribas and Bloomberg. Data as at 30 September 2012. Past performance is not indicative of future returns.

1.   Source: Moody's Investors Service

2.   Source: S&P LCD unless otherwise noted.

3.   Source: EPFR Data.

-ENDS-

For further information please contact:

Neuberger Berman Europe Limited          [phone]

Anji Stewart

FTI Consulting                                              [phone]

Neil Doyle                   

Ed Berry

Laura Pope

Background Information

The Company is a registered closed-ended investment company incorporated in Guernsey. The Company is managed by Neuberger Berman Europe Limited, which has delegated certain of its responsibilities and functions to the sub-investment manager, Neuberger Berman Fixed Income LLC, both of which are indirect wholly owned subsidiaries of Neuberger Berman Group LLC. The Company's investment objective is to provide its shareholders with regular dividends, at levels that are sustainable, whilst growing the capital value of its investment portfolio over the long term. To pursue its investment objective, the Company will invest mainly in floating rate senior secured loans issued in U.S. Dollars, Sterling, and Euros by North American and European Union corporations, partnerships and other business issuers.

Established in 1939, Neuberger Berman is one of the world's leading private, independent employee-controlled asset management firms, managing approximately $194 billion in assets as of June 30, 2012. Neuberger Berman provides a broad range of global investment solutions to institutions and individuals through customized separately managed accounts, funds and alternative investment products.  

This document is intended only for the person to whom it has been delivered.  No part of this document may be reproduced in any manner without the written permission of NB Global Floating Rate Income Fund Limited ("NBGFRIF").  The securities described in this document may not be eligible for sale in some states or countries and it may not be suitable for all types of investors. Prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision.

The price of investments may fall as well as rise and investors may not get back the full amount invested. The target yield should not be taken as an indication of the Fund's expected future performance or results. The target yield is a target only and there is no guarantee that it can or will be achieved and it should not be seen as an indication of the Fund's actual or expected return.

This document is not intended to be an investment advertisement or sales instrument; it constitutes neither an offer nor an attempt to solicit offers for the securities described herein.  This document was prepared using the financial information available to NBGFRIF as at the date of this document.  This information is believed to be accurate but has not been audited by a third party.  This document describes past performance, which may not be indicative of future results. NBGFRIF does not accept any liability for actions taken on the basis of the information provided in this document.

Neuberger Berman is a registered trademark. © 2012 Neuberger Berman.

 

END

 

 

PFUBLBDGDGBBGDB