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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 125.6 million (as at 30.04.2024)

Investment Company

Nomura Asset Management U.K. Ltd.

Lead Fund Manager

   

Julian Marks, CFA
Head of Hybrid Bonds, Nomura Asset Management U.K. Ltd.

Kapish Patel, CFA
Co-Portfolio Manager Hybrid Bonds, Nomura Asset Management U.K. Ltd.

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)

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Important Information

Important Information