Nomura Funds Ireland –
Corporate Hybrid Bond Fund
Offers attractive, high yield-like income and total return levels
from strong, investment grade credits
Nomura Funds Ireland – Corporate Hybrid Bond Fund
Strategy Overview
Corporate Hybrid Bonds are a growing (and under-invested) asset class; it offers attractive, high yield-like income and total return levels from strong, investment grade credits. All issuers are investment grade-rated. Hybrid bonds are subordinate to senior debt in the capital structure, long-dated or perpetual bonds that are callable – typically 5-10 years from issuance – and have deferrable coupons. These features make corporate hybrids attractive for companies to issue, as they help to bolster the issuers’ credit ratings, offer tax advantages and can lower the average weighted cost of capital (WACC). However, issuers are highly incentivised to pay coupons and honour early call dates that investors demand. We believe investors are being over-compensated for what is a relatively simple and bondholder-friendly structure. Our active approach is led by industry veteran Julian Marks, a pioneer of institutional investment in Corporate Hybrids.
Benefits and Differentiators
- Attractive yield levels, given currently historically low default rates.
- Active, long term, fundamentals-based investment approach, implemented by an experienced team.
- Full ESG integration and binding criteria.*
* The Nomura Corporate Hybrid Bond Fund is an Art. 8 fund according to the EU Sustainable Finance Disclosure Regulation (“SFDR”).
Investment Approach
- Actively managed, fundamentals-based credit research drives portfolio construction.
- Particular focus on bond structure and the probability of calls being honoured.
- Exclude issuers in bottom 25% of our ESG scores. Also exclude Tobacco, Firearms, companies without greenhouse gas (GHG) reduction plans.
- The Portfolio is concentrated and focused on ‘best ideas’. Typically, 30-35 issuers and 6-9 industries.
- Currency risk hedged.
Potential Significant Risks
Corporate hybrid bonds are more volatile than senior bonds of the same issuers. However, credit default risk is the primary concern, which is partly mitigated by the strength of the issuers and is limited further through our security selection process. Corporate Hybrids are frequently confused with contingent convertible (Coco) bonds, which are issued by banks, but feature none of the write-down clauses or regulatory concerns of that bond type. Currency risk is hedged to within small tolerances.
| Investment Objective | The investment objective of the Sub-Fund is to achieve an attractive level of total return (income plus capital appreciation) through investment primarily in corporate hybrid bonds. |
| Fund Size | EUR 25.5 million (as at 31.10.2023) |
| Investment Company | Nomura Asset Management U.K. Ltd. |
| Lead Fund Manager |
Julian Marks, CFA |
| Launch Date | 09.08.2023 |
| Base Currency | EUR |
| Benchmark | ICE BofA Global Hybrid Non-Financial 5% Constrained Custom Index (Total Return, Euro, Hedged) |
| Domicile | Ireland (Nomura Funds Ireland plc) |
Introduction to Corporate Hybrid Bonds
Julian Marks, CFA, Head of Corporate Hybrid Bonds, provides an insightful overview to investing in Corporate Hybrid Bonds in the following video. He explains some of the key characteristics, how corporate hybrid bonds can benefit both issuers and investors as well as discussing the risk profile of this growing and underinvested asset class.
Watch video
Corporate Hybrid Bonds White Paper
Julian Marks, CFA,
Head of Corporate Hybrid Bonds,
Nomura Asset Management U.K. Ltd.
June 2023
Nomura Funds Ireland plc is an open-ended investment company with variable capital, incorporated in Ireland on 13th April, 2006 under the Act with registration number 418598. The Fund has been authorised by the Central Bank as an UCITS pursuant to the UCITS Regulations. The Fund is structured as an umbrella fund consisting of different Sub-Funds each comprising one or more Classes. The Fund has segregated liability between each of its Sub-Funds.
Full information on the presented funds, which is relevant for an investment decision, can be found in the fund´s most recent sales prospectus, key information document (PRIIPs KID), key investor information document (UCITS KIID) – as appropriate for your relevant jurisdiction – and annual and semi-annual reports. The UCITS KIIDs are available in English and, for the PRIIPs KIDs, in the official language of the countries in which the fund is registered for distribution. Performance in the past is no guarantee of future success. There can be no guarantee that the fund´s investment objective will actually be achieved.
A summary of investor rights in English and information on collective redress mechanisms are available at https://www.nomura-asset.co.uk/download/funds/how-to-invest/Summary_of_investor_rights.pdf . Nomura Asset Management U.K. Limited may at any time decide to terminate arrangements it may have made for the marketing of units of a fund in a member state other than its home member state.
Corporate debt securities carry a degree of default risk – a risk that capital invested will not be repaid – and therefore may display higher rates of volatility than developed market sovereign debt. Corporate Hybrid Bonds tend be more volatile than senior bonds of the same issuers owing to their subordinate position in the capital structure, deferrable coupons and call risk.
