Where are the returns?

Written by Mark Thomas

11 September, 2019

Neuberger Berman focuses on providing 5 percent returns for fixed income risks. 

Falling interest rates have been positive for people with mortgages and have also provided a boost to the residential property market with clearance rates over 80 percent. But for investors looking for return on low risk bank deposits it is bad news.

According to RateCity the returns on offer for a 12 month terms deposit is around 1.8 percent to 2.2 percent.

This is a result of the very low interest rate environment where 10 year government bonds are offering a return of about 1.1 percent.

For people running self managed super funds this means very low returns. For retirees who are living off the income from their investments the news is really bad.

Stable income can be increasingly hard to find in this low-yielding world. But what many investors and self-funded retirees may not know is that global high yield bonds – a market with over 1,500 companies worth over A$2.7 trillion – is an asset class that can help them meet their needs.

One of the exhibitors at the Property Buyer & Investor Expo in Sydney this year is Neuberger Berman whose 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. This is a $900 million portfolio that targets stable income of 5.25 percent p.a. net of fees. 1

This provides the opportunity to invest in the debt of a lot of companies that people recognise, names like Netflix or Chrysler or Dell.

“These are companies with high free cash flow, a very repeatable business model, and not a lot of competition. Those are the types of businesses we like investing in.” Vivek Bommi, Senior Portfolio Manager at Neuberger Berman.

When compared with the returns on offer from the Commonwealth government over 10 years (1.1 percent) and the banks (roughly 2 percent) this looks attractive. The high-yield bond market continues to offer an attractive risk/reward profile since the U.S. high-yield default rate is low, and it’s expected to remain that way in 2019. Corporate earnings continue to be positive with 75 percent of firms in the S&P 500 beating earnings expectations in the second quarter of 2019. This does not look to change near term even factoring in the trade risks with China.

1 The Target Distribution is only a target and may not be achieved. Actual distributions will be monitored against the Target Distribution. The Target Distribution will be formally reviewed at least annually (as at the end of each financial year) and any change in Target Distribution will be notified by way of ASX announcement as required. Investors should review the “Risk Factors” set out in Section 8 of the 2019 PDS. Please refer to the 2019 PDS for full details of the terms of the Offer, including Section 10 for the fees and costs that apply.