Advisors and investors continue to navigate an increasingly complex market environment in the opening months of the year. Ongoing volatility in bonds and greater investor uncertainty about the path ahead make actively managed strategies like Neuberger Berman Flexible Credit Income ETF (NBFC ) an attractive possibility this year.
Volatility on the short-end of the yield curve remained pronounced for much of 2024 as interest rates remained dynamic. With markets forecasting only one or two rate cuts this year, that volatility could extend to longer duration bonds.
“We think the U.S. two-year yield is capped at around 4.5%,” explained Ashok Bhatia, CFA, CIO and global head of fixed income at Neuberger Berman, last month in a 2025 bond outlook. “By contrast, our outlook also suggests that the volatility we have seen in short rates over the past two years will now migrate further out on the curve, as fiscal and growth dynamics become more complex.”
Invest in Credit Markets With Actively Managed NBFC
“In credit markets, investors face the dilemma of attractive yields paired with near-historically tight spreads,” noted Bhatia. However, Bhatia remains optimistic about the opportunities, with a preference for high-quality issuers and a neutral position in credit.
“Markets have already adjusted to structurally higher inflation; we expect the current technical demand for yield to persist in the year ahead; and we do not anticipate a widespread or meaningful deterioration in credit fundamentals,” explained Bhatia.
It’s the type of environment that could favor actively managed strategies such as the Neuberger Berman Flexible Credit Income ETF (NBFC ). NBFC launched last year and offers notable performance compared to the broader bond market since inception. The fund seeks reliable high income with less volatility compared to the high yield sector.
NBFC offers notable yields for investors since inception. The fund generated a distribution yield (or rate) of 7.34% as of January 31, 2025. Distribution rate is calculated by annualizing the most recent distribution and then dividing it by the fund’s NAV.
The portfolio managers employ fundamental research and quantitative risk management tools when managing the strategy. By using an asset allocation framework that includes qualitative and quantitative factors, they decide bond sector allocations in order to gain exposure to the best relative value within each sector.
The PMs also consider the macro environment and the yield curve. They weigh individual credit analysis and more when building the portfolio using bottom-up analysis. This analysis includes a review of a company’s balance sheet, market position, ability to pay its principal and interests, and cash flow.
NBFC doesn’t seek to maintain a specific average duration. That said, the portfolio managers anticipate the strategy will maintain an average duration between two and eight years. It also may invest in derivatives such as futures, swaps, forwards, and options in order to hedge risk or for general portfolio efficiency.
NBFC carries a net expense ratio of 0.40%.
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