Fund Rationale: Neuberger Berman Strategic Income Fund

Neuberger Berman Strategic Income Fund (the "Fund")
SGD Hedged Class A Accumulation Shares (ISIN: IE00BQSBQV90)
Fund Manager Page

Endowus has selected the Fund as it offers investors stable income and strong total returns through a diverse portfolio of multi-sector USD debt instruments, coupled with a good downside protection through a diverse, multi-sector portfolio managed by an experienced investment team.
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Key Information

Fund Objective: Seeks to maximise total return from high current income and long-term capital appreciation by opportunistically investing in a diversified mix of fixed rate and floating rate debt securities with a focus on downside protection.

Suitability: Investors who are prepared to accept the risks of a global bond market over the medium to long term, and are prepared to accept medium to high levels of volatility due to the Fund’s portfolio management techniques.

Cost:
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* Total Fund-level Fees include fund management fee of 1.0%.
** Endowus do not charge a preliminary sales charge or any other additional fees, other than the all-in Endowus Access Fee.

Fund Characteristics

Fund Inception: 25 April 2013
Share Class Inception: 15 September 2017
Benchmark: Bloomberg Barclays US Aggregate Bond

Fund AUM: SGD 1.8bn
Source: MorningStar as of 27 May 2021. Please refer to the FMC page for the most updated AUM.

🌱EU SFDR Rating: Article 8

Regional Allocation:
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Sector Allocation:
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Source: MorningStar as of 30 April 2021. Allocation data indicate actual exposure as a percentage of the Fund's total Net Asset Value. Please refer to the Fund Manager Page for the most updated information on Fund Holdings and Breakdown.

Selection Criteria

Endowus has selected the Neuberger Berman Strategic Income Fund as it offers investors stable income and strong total returns, coupled with a good downside protection through a diverse, multi-sector portfolio managed by an experienced investment team. 

We like the Fund’s active and methodical investment strategy of considering a broad opportunity set of various sectors within the US Fixed Income space. This allows the team to invest in not only traditional instruments such as Treasuries and Investment Grade Credit, but also creatively rotate into opportunistic sectors, including High Yield, Mortgage-Backed Securities, and Emerging Market to extract alpha across various market conditions. The resulting portfolio is dynamic and highly diversified, utilising multiple sources of returns over time and efficiently constructed to maximise risk-adjusted returns. 

As an added benefit, ESG analysis is embedded in the investment research; ESG risks are assessed on both the macro country-level as well as on the micro issuer-level, excluding all individual securities with an unfavourable ESG rating on at least one of the assessments. With this approach, the Fund has earned an SFDR Rating of Article 8.

The Strategy is run by a highly experienced team of 6 Portfolio Managers who are further supported by Neuberger Berman’s extensive team of almost 180 investment analysts specialising in various sectors. The Fund’s Lead Managers are Brad Tank, Ashok Bhattia, and Jon Jonsson, armed with strong industry experiences -- Brad Tank, in particular, is a veteran with almost 40 years of experience and has been managing the strategy since 2013, and the trio has an average experience of 31 years. Despite the departures of a few Portfolio Managers in the past (due to retirement), the strategy has transitioned well, and given the systematic investment approach that has proven its resilience and effectiveness across multiple market cycles and leadership changes, we put a favourable outlook on the longevity of the Strategy.

Furthermore, the Fund has largely achieved its investment objective -- historically, the Strategy has succeeded in meeting its payout targets, and has also shown a successful track record of total returns and downside protection against its peers and benchmark. Lastly, Endowus has worked with Neuberger Berman to bring the lowest cost access of the Fund to investors, giving an attractive opportunity to be invested in a multi-sector US fixed income portfolio. When viewed in a portfolio context, the Fund can be used as a core fixed income holding given that it is relatively low volatility.

🌱Sustainable Investing Methodology

Neuberger Berman will manage the Fund in accordance with the ESG Policy on a continuous basis. Neuberger Berman has fully integrated the ESG Policy into the overall investment process, in particular, the portfolio construction process. A summary of the ESG Policy is also available on the Neuberger Berman website.

Neuberger Berman shall also apply the Controversial Weapons Policy when determining what investments to make for the Portfolio. Further details on this screening policy is set out in the "Sustainable Investment Criteria" section of the Prospectus.

Neuberger Berman incorporates ESG factors into the sector research and security selection process. As such, Neuberger Berman has developed a proprietary ESG scoring system for corporate holdings across global developed credit markets, both investment grade and non-investment grade, as well as for emerging market debt (local rates, FX, sovereign credit and corporate credit). Neuberger Berman also integrates ESG factors into its municipal research process.

ESG Factors in Global Investment Grade Credit and Global Non-Investment Grade Credit (Developed Markets)

Neuberger Berman systematically considers and evaluates ESG factors as an important component of its credit analysis discipline when making investment decisions. Proprietary ESG scores are a key component of the internal credit ratings. These proprietary scores are assigned to all issuers. The proprietary ESG scoring system is built around the concept of sector specific criteria, which focuses on the ESG issues that are the largest drivers of credit risk in each industry. The Sustainability Accounting Standards Board framework (“SASB”) for sector specific criteria are used as a starting point, but Neuberger Berman customises each set of sector criteria based on judgement, leveraging significant sector/industry expertise. Neuberger Berman also assigns weightings to E, S and G, which vary by sector and are aimed at enhancing their credit risk assessment.

ESG Factors in Emerging Market Corporate Debt

ESG factors are integrated at three different levels:

1) Exclusion lists

Neuberger Berman excludes companies, which are involved in controversial weapons (as noted above), child labour, and the tobacco industry and thermal coal mining companies. 

2) Integration of ESG factors in fundamental analysis

ESG scores are assigned to each issuer using the proprietary ESG scoring system.

3) Analysis of Controversies and Direct Engagement

Neuberger Berman engages with corporate issuers which have high impact controversies or which have low internal ESG scores to assess if the issues are being addressed.

ESG Factors in Emerging Market Debt Country Analysis

Neuberger Berman assesses ESG factors at least quarterly with the aim of capturing the qualitative factors driving the credit quality of emerging market countries.

The environmental factors considered are (i) energy intensity of GDP, (ii) global adaption ranking, (iii) carbon emissions per GDP, (iv) carbon emissions per capita, (v) coal use in electricity generation, (vi) CO2 emissions levels per GDP and per capita, (vii) the degree to which electricity is being produced from coal sources, and (viii) how countries score in the Notre Dame Global Adaptation Initiative Index (regarding to assess their adaptation capability to climate change). Neuberger Berman also monitors countries’ contributions/adherence to the UN Sustainable Development Goals.

The social factors considered are (i) government effectiveness, (ii) regulatory quality, (iii) political stability and security, (iv) human development and (v) voice and accountability. Other social factors considered in respect of country analysis include a country’s relative position on income, education and health as tracked by local and international organisations and development banks, as well as factors related to the effectiveness and legitimacy of the administration through public opinion surveys.

The governance factors considered are (i) rule of law, (ii) corruption, (iii) politics and election calendar, (iv) banking system strength/non-performing loans, (v) ease of doing business and (vi) trade openness. There is also a focus on the quality of economic governance.

Municipal Bonds

The credit process focuses on four primary factors: economy, leverage, financial performance and management and/or political leadership. The quality of issuers' governance and management practices are assessed, including corruption, sound budgetary practices, and responsible use of debt. Other factors are also considered such as environmental (i.e. polluted drinking water) and social risks (i.e. crime) that may affect the borrower's ability to repay. Once a bond is found to be an acceptable credit risk, the issuer’s governance, policies, and management of material social and environmental factors are reviewed. If an issuer is determined to have systemic concerns, the bond is not eligible for purchase. If the issuer meets the required standards, Neuberger Berman reviews the bonds' use of proceeds and score accordingly based on the proprietary methodology.

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Updated by Endowus: June 2021

** Disclaimer: Past performance should not be taken as an indication or guarantee of future performance and no representation or warranty, express or implied, is made regarding future performance. Any opinions expressed reflect a judgment at the original date of publication by us and are subject to change without notice.
The prospectus, profile statement, product highlight sheet, fund factsheet or other offer or product documents may contain references about the expected risk tolerance of their target investors. These are in no way indicative of how we at Endowus have assessed your risk tolerance based on your stated objectives and financial situation. Endowus accepts no responsibility for investment decisions made in response to the expected risk tolerance levels mentioned in the product or offer documents.