Old guard high-yield corporate bond ETFs have plenty of fans among advisors and fixed income investors. That’s understandable because those funds, usually passively managed, provide broad exposure to junk-rated debt, often with favorable fees.
Positive attributes to be sure, but that doesn’t mean the junk bond ETF proposition can’t be improved upon. Arguably, this is a corner of the bond ETF realm that could use some refreshing — an objective accomplished by the Neuberger Berman Flexible Credit Income ETF (NBFC ). The actively managed NBFC, which came to market in June 2024, could be appealing to advisors and investors for multiple reasons.
A 30-day SEC yield of 6.39% is undoubtedly appealing. Plus, the Federal Reserve finally lowered interest rates on Wednesday, and its “dot plot” indicates more rate reductions are on the way. That could increase the allure of NBFC and high-yield corporate debt, because as Treasury yields decline, higher-yield bonds become more appealing.
More Reasons to Consider NBFC
One of NBFC’s selling points is that “flexible” isn’t just a word mentioned in the ETF’s name. It’s something the product lives up to, and not just by way of being home to 377 issuers.
Look at the Neuberger Berman ETF this way. Many of its traditional, passively managed peers focus on just a single corner of the high-yield bond market: junk-rated corporates, courtesy of domestic issuers. That approach is fine, but it can also lead to missed opportunities. Flexibility as embraced by NBFC’s managers can generate opportunities.
Indeed, the ETF allocates just over 40% of its roster to standard junk corporates, but also features 23.2% weight to floating rate notes and collateralized loan obligations (CLOs). Those are debt instruments that have income potency with reduced interest rate risk. Regarding rate risk, the ETF’s duration is just 3.36 years with a weighted average maturity of 4.81 years.
NBFC also directs nearly 13% of its portfolio to emerging markets debt, which is noteworthy because that bond segment has historically responded favorably to lower interest rates in the U.S. — the exact scenario that arrived on Wednesday.
Confirming its flexible posture, NBFC also has an 8.1% weight to investment-grade corporate bonds and exposure to hybrid and securitized debt — all three of which are rarities in legacy passive junk bond ETFs. On a related note, NBFC holdings run the gamut of AAA (a small amount) to CCC. That breadth is uncommon in older competing products.
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