How the hunt for "best value" has changed in the last 3 years (and where it may now be)

This interview was taped on Wednesday 5 June 2024.

Three years is a long time in markets, and few asset classes make that axiom more clear than in the fixed income markets. Remember when the RBA Governor thought rates would not rise until at least 2024? Or that time when the Federal Reserve thought there would be just three rate hikes throughout all of 2022? Well, spoiler alert, neither of those things came to fruition. And investors are still paying for it in the form of higher for longer bond yields and frothy valuations across all major asset classes. 

For fundamental investors who spend their lives searching for low-risk, high-value opportunities, it can feel like the rug has been pulled out from under them. 

On the hunt for the "best value" opportunities

"A couple of years ago, we had a very strong conviction view that the best value was in maximum risk in corporate credit - in particular, high yield," Adam Grotzinger, Senior Fixed Income Portfolio Manager at Neuberger Berman recalls. "That was the place the markets presented us the best opportunity. But if you look at the portfolio today, it's almost the inverse of what it was in 2021."

Needless to say, "best value" opportunities still exist in the global fixed income universe. Some government bonds have short-term yields of well over 5%, US investment grade credit could net as much as 7%, and depending on where you look, select high yield investments can return over 10% in addition to your existing principal. 

This explains why Grotzinger is so optimistic about the future of global fixed income assets - and why he thinks Australians should consider looking abroad.

"There is no yield give up in leaving Australia per se", Grotzinger argues. "If you want to build more diversification beyond the banks and commodities exposures, the global debt markets give you that in addition to the yield proposition," he adds.

In this edition of Livewire's Fund in Focus, Grotzinger shares the secrets behind the Neuberger Berman Strategic Income Fund including what he feels gives the fund its strategic advantage. He also shares his thoughts on the "quest for best value" investments and how that could shape what the portfolio looks like in the next 12 months. Finally, we talk about the return profiles that could be gleaned from this investment opportunity.

Exploiting mispriced sectors

Investing in the Neuberger Berman Strategic Income Fund provides access to a diversified, multi-sector fixed income strategy that seeks high income and an attractive total return from flexible sector and intra-sector asset allocation across global fixed income markets.

Managed Fund

Neuberger Berman Strategic Income Fund

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