Neuberger Berman Group’s Global Bond Absolute Return Fund recently marked its first anniversary.

The fund, a sub-fund of its Irish-domiciled UCITS fund umbrella, Neuberger Berman Investment Funds plc, launched on 25 September 2013 and completed its first year with a four per cent gross return, in line with its objectives.
 
The fund is co-managed by London-based Jon Jonsson and Chicago-based Andy Johnson. 
 
The fund follows a fundamentally driven, relative value approach to find opportunities across fixed income sectors and markets. The team’s consistent, proprietary framework uses a rigorous and repeatable process to collate the views of fixed income specialists, assess expected return opportunities and crucially, quantify their confidence in those expectations to create a portfolio of longs and shorts spread across the entirety of global fixed income markets yielding our best ideas for the prevailing investment environment.
 
Jonsson says: “Over the past year, we have maintained a constructive view on corporate credit risk. Credit spreads seem likely to move in a range for the remainder of 2014, as the rally is very mature and spreads appear close to a cyclical low.  We substantially reduced our investment grade exposure in response to this as we believe the market is now much closer to fair value.” 
 
The team has reduced their credit exposure by rotating into sectors they view to be still attractive on a valuation basis: 
 

• Non-agency mortgages, particularly vintages of 2003 to 2006, have improving fundamentals as employment levels rise and house prices recover. The sector hasn’t been fully embraced by investors and the credit risk is balanced with the opportunity to buy subprime bonds at significant discounts, and loss adjusted yields of above five per cent, says Jonsson.

• Emerging markets had sold off quite dramatically after the tapering announcement last year, and continued to do so with news of the Russia / Ukraine crisis in January. The team believes these events created a buying opportunity and it has steadily moved back into emerging markets this year, starting with emerging markets hard currency in January and more recently it went in through FX and local bonds. Mexican local bonds in particular offer attractive investment opportunities, Jonsson says.

• High yield valuations have become more appealing as the asset class has repriced. The team is seeing opportunities within both US and European high yield and at the same time bank loans have held up well and it is looking to switch out of bank loans into high yield.