Neuberger Berman has launched a Ucits strategy focused on the fastevolving non-financial corporate hybrid debt asset class. Issued by well-known IG corporates, hybrid bonds offer a significantly higher yield than senior bonds. Accounting for around 3% of euro IG credit indices, hybrid new issuance of $25-30bn per year is forecast for the foreseeable future. “The hybrid universe offers an opportunity to access IG names whilst earning returns commensurate with HY.
The incremental yield offered relative to senior unsecured debt presents an attractive way of enhancing performance in the current low-yield environment,” Neuberger Berman manager Julian Marks says. “These bonds currently trade on average +100bps wide of fair value. “Also, the large amount of new issuance is likely to continue coming at a discount, providing an additional source of return.
“However, due to the relatively complex nature of hybrids, investing requires specific expertise, including a thorough credit assessment and an in-depth analysis of the issue features in order to reach a conclusion as to a fair valuation.”