This Corporate Bond ETF Matters Now

The Neuberger Berman Flexible Credit Income ETF (NBFC), an actively managed fund launched in June 2024, is highlighted for its 6.39% 30-day SEC yield, drawing appeal from its flexible allocation across high-yield and investment-grade corporate debt. Notably, investment-grade corporate bonds are currently yielding 4.25%-5.50% for intermediate maturities, near 15-year highs. This elevated starting yield historically correlates with strong future total returns, positioning NBFC as an attractive option for income investors amidst current interest rate uncertainty and expectations of potential Federal Reserve rate cuts.

Analysis

The Neuberger Berman Flexible Credit Income ETF (NBFC), an actively managed fund launched in June 2024, presents a compelling case for income-focused investors in the current fixed-income landscape. The fund's strategy involves a flexible allocation between high-yield and investment-grade corporate debt, with a current 30-day SEC yield of 6.39%. This is set against a backdrop of strong performance in the broader corporate debt market, where the largest ETFs have seen average gains of 7% year-to-date. A key driver of NBFC's appeal is the historically elevated yield on its investment-grade holdings. According to Charles Schwab, intermediate-term investment-grade corporate bonds are offering yields between 4.25% and 5.50%, near a 15-year peak. Historically, a higher starting yield has shown a strong correlation with higher future total returns, suggesting potential for capital appreciation if yields decline, a scenario supported by market expectations of future Federal Reserve rate cuts. NBFC's blended, actively managed structure is positioned to navigate this environment by capturing high current income from its junk bond allocation while leveraging the potential for total return from its high-quality corporate debt holdings.

Key Decisions for Investors

• Investors seeking income and potential total return should consider funds like NBFC, which benefit from the current high starting yields in investment-grade credit that historically correlate with strong forward-looking performance.
• Evaluate NBFC's flexible, actively managed mandate as a potential tool to navigate an uncertain interest rate environment, as it allows for dynamic allocation between high-yield and investment-grade segments.
• Monitor the Federal Reserve's policy trajectory and credit spread movements, as the investment thesis partially relies on the potential for falling yields to drive bond price appreciation.