How to get stable income in a low-yield world

As many investors approach retirement, stable income can be increasingly hard to find in what can only be described as a low-yielding world. But what many investors and self-funded retirees may not know is that global high yield bonds – a market with over 1500 companies worth over A$2.7 trillion – is an asset class that can help them meet their needs.

In this exclusive video, Vivek Bommi, Senior Portfolio Manager at Neuberger Berman, looks at how the global high yield sector represents a powerful opportunity to invest in the debt of globally respected names, from companies such as Dell and Chrysler through to Netflix.

Below, Vivek guides investors around some of the risks to be aware of when it comes to global high yield, such as bankruptcy risk, while also explaining how he expects the global high yield market to benefit going forward as a result of a stronger global economy.

Neuberger Berman’s Global Corporate Income Trust (ASX:NBI) was listed on the ASX in September 2018 and provides investors with exposure to the high yield bonds of large and liquid global companies.

For more information about NBI and how this investment solution can provide stable and consistent income, as well as diversification, please visit www.nb.com/nbi

Transcript

What is the case for global high yield?

As we look out in the market today, we see there's a need, especially with people getting close to retirement, for a product that delivers stable income in a low-yielding world. So, we think that the case for global high yield fits that. The market we invest in is over A$2.7 trillion in market value, over 1,500 companies globally. And you have the opportunity invest in the debt of a lot of companies that people recognise, names like a Netflix or Chrysler or Dell. And so we think that that opportunity set is very powerful for investors, especially now.

One of the most important rules is avoiding companies with deteriorating fundamentals. The way you could lose money in this type of strategy is if you start having names where their fundamentals deteriorate, and the company goes bankrupt. Now, we mitigate that by having a large research team dedicated to the strategy, over 50 investment professionals. Their jobs are to really understand the drivers of each company, and to get us out of the name before trouble occurs.

What are the pitfalls of the asset class?

It's what I mentioned before, it's really that bankruptcy risk. On average, a recovery for a high yield bond is about 20 cents on the dollar. So what you want is to be proactive, and to get out of names, well ahead of times before they may default.

How do you address perceptions that higher yield equates to higher risk?

I say, look, the market has evolved over the last 20 years. And so what has been a much smaller market 20 years ago, that was basically in the US, has evolved into a market where it's almost A$2.7 trillion of value, 1,500 individual names, and a median revenue of over $6 billion. A lot of these are household names that people have heard of, whether it be a Virgin Media, a Chrysler or a Netflix, but they're also business models that people understand like a wireless telecom company or a cable company.

What is your reading on the health of the global economy?

Overall, it's pretty good. When I look at the three major regions that we're invested in. First on the US side, I'd say business is booming there. Our companies are a bit more insulated from trade. Almost 80% of their revenue is generated in the US. And overall, they're still seeing good underlying demand, the US, as unemployment is quite low and the consumer is actually very strong. We move over to Europe, while economic growth has slowed down there, a lot of that is more export related. Internal demand in Europe is actually still quite good, and the benefits of lower energy prices are starting to come through in Europe, and you're starting to see economic growth scrape along the bottom. And we expect that to improve in the next 12 months.

Emerging markets, it's a wider group of countries as there's over 30 countries there. And I'd say some countries are doing a little bit better than others. I mean you're starting to see growth slow down there. And again, a little bit more of that is trade related. But overall, we're still seeing good economic growth from our companies that we're invested in.

We think over the next couple of years, at least, the global economy will still remain strong, and in that type of environment, high yield does quite well.

Disclaimer

Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298, AFSL 240975), is the Responsible Entity for the NB Global Corporate Income Trust (“NBI”). Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22 607 797 615), a publicly listed company on the Australian Securities Exchange (ASX: EQT).

This publication has been prepared by Neuberger Berman Australia Pty Ltd (ACN 146 033 801) (“NB Australia”) to provide you with general information only. In preparing this publication, we did not take into account the investment objectives, financial situation or particular needs of any particular person. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance on this publication. Neither NB Australia, Equity Trustees nor any of its related parties, their employees or directors, provide any warranty of accuracy or reliability in relation to such information or accepts any liability to any person who relies on it. Past performance should not be taken as an indicator of future performance. You should obtain a copy of NBI’s Product Disclosure Statement before making a decision about whether to invest in this product