Fund Research

NB Global Floating Rate Income Fund

Last update 05 July 2018

NB Global Floating Rate Income Fund invests in senior secured floating rate loans, offering investors access to a low duration fixed interest portfolio with the potential for stable or rising income even in a rising interest rate environment.

We believe the current environment of rising rates and inflation, nearing the end of the business cycle, is precisely the situation the trust was designed for and we would point to the trust’s behaviour this year as evidence. The dividends have seen a significant increase as US LIBOR moves higher, while the trust produced positive NAV returns in Q1 as both equities and bonds fell.

The quarterly dividend for Q2 was 1.07p a share, up from 0.8p in Q1, and we believe there is scope for further increases this year as US LIBOR is likely to continue to rise.

Although high demand for loans has led to repricings and lower spreads in the loan market, there are signs this demand may be topping out, and the percentage of loans on the market repricing is falling.

Investing in non-investment grade rated corporates means the fund does take credit risk, but this is mitigated by the large, focussed team that knows the issuers well and has worked through previous economic cycles. Being senior in the capital structure and having security over all of the assets of a company also minimises the risk to investors. Furthermore, the managers have a cautious approach which leads them away from the more cyclical sectors at higher risk of default.

The trust yields 3.7% with a duration of just 0.47 years and a track record of low correlation to equities.

The discount history suggests that as the dividend rises, the trust could move towards parity with NAV. In the meantime, the Board has been very pro-active in buying back shares, usually when the Fund is trading on a discount over 3%. With the current discount 2.4%, the risk to the downside is limited.

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Fund History: NB Global Floating Rate Income Fund

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