Forecasts of a recession are looming among market experts. Making sense of recession probabilities can be complex. But with yields still elevated, it’s an opportune time for fixed income investors to pounce.
When probabilities of a recession rising, it can make the bond market more appealing. Investors typically flock to bonds to serve as a shock absorber when the equities market get volatile. The increased demand then pushes down yields and conversely increases prices. That’s why with yields still relatively high, it’s a perfect time to lock those yields in sooner rather than later.
As noted in a UBS market report, the current yields provide this lock-in opportunity. When it comes to maximizing yield, advisors may suggest their clients look at high-yield options. In today’s elevated interest rate environment, however, they can divert them toward quality, investment-grade options.
“We believe yields on quality bonds in most major markets are attractive, and we anticipate the continuing global rate-cutting cycle will contribute to investor inflows,” noted UBS.
If investors want to maximize their income options, bonds alone won’t do. UBS also suggested adding other fixed income investments to round out the portfolio.
“Complementing quality bonds with select short- and medium-duration riskier credit investments can enhance diversification and returns,” UBS added, mentioning that other options like “emerging market bonds, senior, loans, and private credit can provide an additional boost to income while offering access to different drivers of return.”
That said, a flexible option can provide exposure to diversified income opportunities. This is where the Neuberger Berman Flexible Credit Income ETF (NBFC ) showcases its benefits.
Flexible Income Option
NBFC makes use of the Neuberger Berman Multi-Sector Fixed Income platform to search for opportunities in various credit markets. With its active management strategy, the fund looks for the best-yielding assets; in particular, income streams that exhibit less volatility than the high yield market.
As UBS mentioned, investment-grade options are currently offering prime yield. That said, risk averse investors don’t need to attain exposure to high-yield debt. They can opt for alternative income-yielding funds like NBFC.
The fund’s flexibility is further augmented with its multi-income approach. Exposure may come in the form of derivatives such as futures, swaps, forwards, and options.
As mentioned, income diversification is key and NBFC has that in spades. The fund has over 350 holdings (as of May 29). A discussion on yield certainly warrants a numbers discussion. That said, NBFC has a 7.10% 30-day SEC yield (as of April 30).
Additionally, the fund has a 0.40% net expense ratio. Cost is a common discussion among active ETFs. But relative to its competitors, the fund is cost-effective. NBFC falls below the FactSet segment average of 0.64%.
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