Portfolio Update

RNS Number : 4124V

NB Global Floating Rate Income Fund

14 January 2013

 



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 targets an annualised yield per share, net of fees and expenses, in the region of 5% on the issue price, plus some capital appreciation, whilst seeking to preserve investors capital and give protection from rising interest rates.

The Fund's managers generate this yield by investing primarily 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 31 December 2012:

·     was split 93.91% USD, 2.32% EUR and 2.23% GBP

·     had 6.96% allocated to bonds out of the maximum 20% allowable

·     was invested primarily in B (54.74%) and Ba (39.29%) rated investments¹

Market Environment²

The loan markets in both the US and Europe finished the year on a positive note, with the US S&P/LSTA Loan Index returning 9.66% (Q4:1.42%), whilst the S&P European Leveraged Loan Index (ELLI) returned 9.48% (Q4:2.00%). The loan market saw strong demand throughout the year as investors looked for opportunities to earn a decent running yield, whilst limiting downside risk and duration in portfolios, which led some to switch into loans from both investment grade and high yield bond portfolios. Flows into the loan market remained strong in Q4, with $22.8bn generated from CLOs and a steadily rising $4.6bn from mutual funds, leading to full year totals from these two sources of $53.5bn and $8.5bn respectively. Additionally, whilst difficult to formally track, pension funds and relative value investors are thought to be investing $1-2bn per month. This demand has been met by strong new issuance which ended the year at $295bn (up from $231bn last year), the third best year on record. The majority of this was related to refinancings and dividend recapitalizations, generally the types of transactions we favour, as we are lending new money or recommitting to obligors and management teams that we have worked with for a long time and know well. Default rates ended the year within our guidance levels, with current trailing default rates in the US and Europe of 1.3% and 6.6% respectively, against our forecasts of below 2% and 7%, and we have had no defaults in the portfolio since inception. 

Portfolio Management

We are comfortable with the current portfolio construction. During the year, and particularly during the second half, we reduced the potentially volatile components. Our bond exposure has dropped from 12.6% at the end of 2011 to 7.0% currently, which reflects both the convergence of loan and bond spreads and also profit-taking as markets rallied. Our non-US exposure has come down dramatically from 11.9% at the end of 2011 to 4.6% currently. Again, there was some profit-taking here but, as communicated previously, we remain concerned about the European macro situation. From a rating perspective, we have always been overweight in the single B rating group, with B+ the most represented by portfolio weighting since inception. This year we have improved the credit quality of the portfolio by reducing our CCC exposure from 6.6% to 4.1%.

Outlook

We continue to have a positive outlook for the bank loan market. In our view, fundamentals remain strong and while corporate earnings may not be as robust as earlier in the year, they remain strong enough for most issuers to generate free cash flow. Furthermore, the default rate among securities in the S&P/LSTA index has been well below its long term annual average of 4%² and we believe this trend will continue in 2013. We also feel that the technical backdrop is supportive for the bank loan market. In our view, global Central Banks accommodating monetary policy seems likely to generally drive investors to riskier assets in an attempt to boost their returns in an ultra-low interest rate environment. We believe that the bank loan asset class should benefit in this environment given the combination of attractive current yields and low duration. However, there could be periods of volatility given ongoing global macro issues, including fiscal cliff-related government spending cuts, the raising of the US debt ceiling and the European sovereign debt crisis. In addition, given significant appreciation in the bank loan market, we believe that the largest contributor to performance in 2013 will be coupon payments.

Source: BNP Paribas and Bloomberg. Data as at 31 December 2012. Past performance is not indicative of future returns.

1.   Source: Moody's Investors Service

2.   Source: S&P LCD.

-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 $203 billion in assets as of September 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. © 2013 Neuberger Berman.

 

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