A common notion in fixed income is that to maximize yield potential, investors need to also turn up the credit risk acceptance dial fully. The Neuberger Berman Flexible Credit Income ETF (NBFC ) begs to differ.
By way of the Neuberger Berman Multi-Sector Fixed Income platform, the fund strategy traverses various credit markets in search of the best-yielding assets. The fund uses an active management strategy that looks for income streams that exhibit less volatility than the high yield market. That’s especially important during fragile market environments such as now.
The income potential might seem appealing when looking into the world of high yield debt. But the risk of a recession looms. Morgan Stanley, for example, is forecasting a recession in the middle of the year. That doesn’t typically bode well for the riskiest debt issues. Investment-grade debt can typically weather the storm of an economic downturn while their higher-risk counterparts have a greater probability of defaults.
“If we go into a recession, high yield probably has a little bit more to lose,” said John Lloyd, lead for multisector credit strategies at Janus Henderson Investors.
A Multi-Income Approach to Yield
Because of its strategy, rather than wade in the risky waters of high-yield debt, fixed income investors can dip into alternative income-yielding funds like NBFC. As its name explicitly mentions, it offers flexible income options that reach for yield outside of risky bonds.
Along with bond exposure, NBFC uses a multi-income approach. It may also invest in derivatives such as futures, swaps, forwards, and options.
Because of its multi-strategy, NBFC doesn’t seek to maintain a specific average duration with its holdings. It skews toward intermediate, which is an ideal Goldilocks option for fixed income investors looking to maximize yield while also limiting rate risk. The weighted average duration is 5.85 years, and the weighted average maturity is 7.77 years (both as of March 31).
NBFC’s diversification is readily apparent, with its 300-plus holdings (as of May 21). If investors are solely seeking yield, this ETF isn’t lacking in that department. It has a 7.10% 30-day SEC yield (as of April 30). NGBF is able to explore markets for yield opportunities using its experienced portfolio managers via its active strategy.
Furthermore, the fund has a 0.40% net expense ratio. This falls below the FactSet segment average of 0.64%, making it a cost-effective option for those looking into active ETFs.
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