Nomura Asset Management (NAM) expands its range of high yield bond funds available to European investors with the launch of the Nomura Funds Ireland – US High Yield Bond Continuum Fund.
The UCITS Fund is a variant of NAM’s $3bn US High Yield Bond Fund, and applies strict ESG criteria in order to meet the requirements of Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR).
The Fund is managed by Nomura Corporate Research and Asset Management Inc (“NCRAM”), Nomura’s high yield investment boutique, specialising in below investment grade bonds.
The investment team seeks to build a diversified portfolio of attractively valued “strong horse” credits with the financial wherewithal to service their debt burden over the economic cycle, and ultimately reduce indebtedness over time. The Continuum fund is benchmarked to the ICE BofA US High Yield Constrained Index, which yields more than 8.5% as of late August.
Steve Kotsen, the lead manager of NCRAM’s US high yield strategy, will manage the Fund. He is supported by an assistant portfolio manager and NCRAM’s experienced team of 12 high-yield credit analysts and two trading specialists.
Peter Ball, Global Head of Distribution at NAM: “Sustainability has become a key element in the holistic assessment of a company’s credit quality. Business and financial risks are closely linked to risks arising from threats to the environment or social cohesion. The Continuum strategy limits the portfolio’s weighted average carbon intensity (Scope 1 and Scope 2 emissions divided by turnover) to a level below that of the benchmark. The Fund also meets the requirements of Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR), which is particularly appreciated by our European clients.”
Steve Kotsen, Managing Director at NCRAM: “The consideration of ESG criteria and sustainability goals fits perfectly with our “Strong Horse”* investment philosophy. We try to identify companies that are well positioned to generate free cash flows over the long term through the different phases of the economic cycle. For decades, interest rates have only known one general direction: down. With interest rates on the rise, bonds are once again becoming an increasingly attractive asset class to investors.
High-yield bonds bring diversification to a fixed income portfolio. Their leverage is almost as low as it has been for ten years. With our rigorous investment process, we aim to benefit from the higher yield, while minimising the risks of default.”
The “Nomura Funds Ireland – US High Yield Bond Continuum Fund” (ISIN: IE0004XE2ZO7), will seek to filter out issuers with the highest ESG risks in the investable universe, creating a sustainable portfolio with a lower exposure to the energy and basic industries sectors.
A key component of the selection process is a separate ESG risk ranking for each individual issuer. NCRAM ranks issuers on a scale of 1 to 8, with companies rated 1 having the lowest sustainability risk. The Continuum strategy will not invest in the highest ESG-risk issuers with a rating of 6-8.
The US high yield bond market delivered strong returns in the first half of 2023, with the ICE BofA US High Yield Constrained Index (HUC0) up 5.42%. Solid economic data helped credit spreads tighten, however, yields remain around 8.5% with a maturity of around 5 years (as of 15.08.2023).
