Neuberger Berman has launched a corporate hybrid bond fund.
The investment manager, which currently manages about $500m in corporate hybrid mandates for Japanese institutional clients, says the asset class is “under-appreciated” but boasts strong liquidity, attractive yields and a buoyant new issue market.
The Neuberger Berman Corporate Hybrid fund, which has a Ucits structure, launched today and was seeded with $21m (£14m). The fund will be available to UK investors in the near future.
Investment grade credit portfolio managers Julian Marks and David Brown are running the portfolio.
Marks says: “The hybrid universe offers an opportunity to access investment grade names whilst earning returns commensurate with the high yield market. The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment.”
Neuberger Berman says liquidity is strong in the $120bn corporate hybrid bond market and interest in the asset class is increasing, with new issuance of $25bn to $30bn forecast each year “for the foreseeable future”.
Marks says the bonds are currently trading on average over 100bps below fair value, and the large amount of new issuance is set to continue at a discount, boosting returns.
He adds: “We believe this is a compelling time to invest in this under-appreciated asset class which should continue to provide a rich source of alpha over the long-term.
“The market continues to grow in significance, attracting increasing attention from a variety of market participants, including both investment grade and high yield investors and those that are benchmark aware as well as absolute return-focused. The attractive initial yields, some spread tightening over time, a buoyant new issue market as well as ample security selection opportunities should ensure that investors do well over the long run.”