Results analysis from Kepler Trust Intelligence

RNS Number : 2012A

NB Global Monthly Income Fund Ltd

22 September 2022

 

NB Global Monthly Income Fund (NBMI)

22/09/2022

Results analysis from Kepler Trust Intelligence

NB Global Monthly Income Fund (NBMI) has reported a NAV total return of -8.92% for the first half of the 2022 financial year, ending 30/06/2022, and a share price total return of -9.27%. During the period fixed income markets saw sell-offs in duration and credit. NBMI's diversified portfolio performed better than the high yield market, the ICE BofA Global High Yield Constrained Index returning -14.88%.

At the beginning of the year the board announced a target dividend of £0.00415 per share per month (5.25% of NAV on an annualised basis). Thanks to increases in central banks' base rates, this target was raised to £0.00443 per share in April or 5.8% of NAV annualised, and then again to 6.75% annualised in July (£0.00467 per share per month).

Kepler View

NB Global Monthly Income Fund (NBMI) is essentially a highly sophisticated strategic bond fund that uses the flexibility afforded by the closed-ended structure to invest in various non-conventional fixed income sectors usually restricted to institutions. This helps the portfolio to generate a high ungeared yield. As of the end of July, the portfolio had 26.3% in private debt, 11.7% in special situations and 11.1% in CLOs, sectors in which the typical bond fund won't or can't invest. A significant proportion of the portfolio is held in leveraged loans (29% at the end of August), which contributes to the floating rate component.

The results for H1 2022 were disappointing in absolute terms as bonds and equities sold off significantly. Having a low duration helped NBMI relative to global bond markets, and floating rate instruments continue to make up the majority of the portfolio, although they have fallen slightly from 70% to 66%. This should provide some cushion against the effects of any further rate increases by central banks, and could lead to corresponding increases in the dividends on offer. The high yield focus of the portfolio detracted from performance, and given 100% of the portfolio had a high yield rating as of 31/07/2022, credit will continue to be a key risk factor in the future. However, the credit exposure brings with it highly attractive income, and the current dividend when annualised amounts to a yield of 7.15% on the current share price (thanks in part to the discount). The manager notes that default rates remain low in high yield, and believes they are likely to remain so based on their bottom-up analysis of issuers.

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