Nomura Asset Management has launched its first corporate hybrid bond fund in Europe, which aims to capture attractive yield levels of the subordinated bonds that are comparable to those of high-yield notes.
The Nomura Funds Ireland - Corporate Hybrid Bond Fund focuses on 30–40 issuers, about half of which are substantially overweighted, the Japan-headquartered investment manager said on Tuesday. The companies and their individual bonds are analysed on a fundamental and ESG basis.
"We believe this is a particularly favourable time to invest in corporate hybrid bonds because the risk premiums are, on average, over 100bp above what we consider to be fair value," said Julian Marks, head of corporate hybrid bonds at NAM.
"This means that there is considerable potential for price gains and, furthermore, certain issuers are, in our view, significantly mispriced, creating good opportunities for active managers to generate added value for investors."
Corporate hybrid bonds carry an average yield in excess of 8% per annum in euros, while they are mostly issued by stable companies with robust balance sheets and investment-grade credit ratings, predominantly from Europe, Nomura said. For borrowers, such subordinated bonds allow them to optimise their capital structures, support their credit ratings and minimise their weighted average cost of capital.
"In hybrid bonds, we see some of the best investment opportunities in the entire bond market. Only a few market participants can take advantage of them because it requires a high level of specialised expertise and experience," said Peter Ball, global head of distribution at NAM.
Marks joined NAM in January after 15 years at Neuberger Berman, where he was the lead portfolio manager for corporate hybrid bond strategy and also a portfolio manager on broader investment-grade credit mandates. He will work alongside his 12-member investment team of analysts and portfolio managers.
"Having brought in Julian, who has in-depth knowledge of the market, we can now offer our clients a hybrid bond investment solution that can help to effectively diversify their portfolio and open up new sources of return," Ball said.