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European High Yield Bond

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Institutional Strategy > Fixed Income > European High Yield Bond

European High Yield Bond

Seeks to create a diversified portfolio that can produce long-term returns through a disciplined credit process that focuses on attractive relative value opportunities while avoiding credit deterioration

  • Disciplined, repeatable and proactive investment process managed by an experienced and stable investment team
  • Three sources of added value: avoidance of credit deterioration, industry and quality rotation and relative value analysis
  • Comprehensive credit analysis driven by proprietary “Credit Best Practices” with a risk management overlay and ESG framework

Key Risks

Market Risk: The risk of a change in the value of a position as a result of underlying market factors, including among other things, the overall performance of companies and the market perception of the global economy.
Liquidity Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Credit Risk: The risk that bond issuers may fail to meet their interest repayments, or repay debt, resulting in temporary or permanent losses to the portfolio.
Interest Rate Risk: The risk of interest rate movements affecting the value of fixed-rate bonds.
Derivatives Risk: The strategy may use certain types of financial derivative instruments (including certain complex instruments). This may increase the portfolio’s leverage significantly which may cause large variations in the value of investments. Investors should note that the strategy may achieve its investment objective by investing principally in Financial Derivative Instruments (FDI). There are certain investment risks that apply in relation to the use of FDI.
Counterparty Risk: The risk that the portfolio may be unable to sell an investment readily at its fair market value.
Operational Risk: The risk of direct or indirect loss resulting from inadequate or failed processes, people and systems including those relating to the safekeeping of assets or from external events.
Currency Risk: Investments in a currency other than the base currency of the portfolio are exposed to currency risk. Fluctuations in exchange rates may affect the return on investment. If the currency of the portfolio is different from your local currency, then you should be aware that due to exchange rate fluctuations the performance may increase or decrease if converted into your local currency.

Overview

Investment Philosophy

We believe inherent volatility in European High Yield markets can provide experienced managers with compelling relative value opportunities. Our team operates a disciplined and repeatable credit process which seeks to provide downside protection with upside participation.

Our high yield credit analysis capabilities are complemented with a technology-driven set of proprietary analytical processes to identify, select and monitor portfolio positions. We leverage a customized database containing detailed information on over 2,000 credits. We typically select 75–100 issuers for the strategy to invest in.

Why European High Yield?

A dramatic yet sustainable increase of new issuers entered the market since 2009.

Source: ICE BofAML European Currency High Yield Index (HP00).
Data as of October 31, 2017.

Disintermediation has created an ongoing opportunity to expand the European investable universe which has led to dramatic increases in new corporate issuers coming to market, especially in high yield. This presents an attractive opportunity for the few managers like Neuberger Berman who have the credit research capabilities to analyse and avoid potential future defaults.

Relative to the rest of the European fixed income market, non-investment grade corporates offer attractive credit spreads while reducing interest rate risks.

Investment Process

  • Universe

    All corporate securities rated below BB+, which is comprised of approximately 400 issuers.
  • Eliminate

    Less liquid issuers, defaulted and distressed securities, outliers and issuers with high default potential.
  • Relative Value Screen

    Apply “Credit Best Practices” checklist
  • Best Ideas

    Credit analysis capabilities are complemented by a technology-driven set of proprietary analytical processes to identify, select and monitor portfolio positions.

Management

Vivek Bommi, CFA
Senior Portfolio Manager
22 Years of industry experience
13 Years with Neuberger Berman
Simon Matthews
Senior Portfolio Manager
21 Years of industry experience
1 Year with Neuberger Berman