Monthly Listed Investment Trust Report – Jun 2024

This story features GRYPHON CAPITAL INCOME TRUST, and other companies. For more info SHARE ANALYSIS: GCI

Download related file: IIR-Monthly-LMI-Update_-5-June-2024

A Listed Investment Company (LIC) is a listed investment vehicle that offers investors access to a diversified portfolio of shares in other companies also listed on the stock market.

Note: For comprehensive comparative data tables for LICs and ETFs please see attached.

Content below is limited to the Gryphon Capital Income Trust ((GCI)) and Neuberger Berman Global High Yield Fund – Formerly NB Global Corporate Income Trust ((NBI)). For more industry news, see the report attached.

Gryphon Capital Income Trust 
During the month we completed a review of Gryphon Capital Income Trust. The Trust is designed to provide investors with regular monthly income through an actively managed portfolio of Residential Mortgage Backed Securities (RMBS) and Asset Backed Securities (ABS).

The Trust is managed by Gryphon Capital Investments Pty Ltd (the “Manager”), a specialist fixed income manager wholly owned by Barings, a global investment manager specialising in public and private markets in fixed income, real assets and capital solutions. The portfolio is typically positioned predominantly to RMBS with a focus on Prime RMBS, however exposure to ABS is becoming an increasing part of the portfolio due to increased opportunities available in the market.

The portfolio is actively managed with the Manager rotating the portfolio to attractive risk-adjusted opportunities identified including secondary market transactions, with capital preservation being front of mind for the Manager.

The Trust has consistently met or exceeded its return target of the RBA cash rate + 3.5%p.a, net of fees and expenses, with the Manager providing a diversified portfolio of RMBS and ABS across the credit rating scale to achieve the target return. The Manager invests in all but AAA tranches in an issuance with the Trust having at least 50% of the portfolio invested in Investment Grade securities (AA through to BBB).

Over the life of the Trust, on average the portfolio has had a 65% allocation to Investment Grade securities and 33% to Non-Investment Grade securities with an average of 2% cash.

IIR maintained its Recommended Plus rating for GCI. The Trust provides a unique investment opportunity in the listed managed investment universe being the only LMI that is focused solely on RMBS and ABS.

The Trust is managed by a highly experienced team with the acquisition of the Manager by Barings only improving on the resources at the Manager’s disposal. In its nearly six years, the Trust has consistently delivered on its return objectives with the Manager delivering a distribution yield that has consistently met or exceeded the target return through the allocation to a portfolio of securitisation issues across the credit rating spectrum.

The Manager’s diligent and robust investment process is considered among the best of breed with access to the loan level data combined with the Manager’s database of transactions providing the Manager a significant advantage when constructing the portfolio to the benefit of investors.

The increased size of the Trust has provided investors improved liquidity without being dilutive to NAV and has provided the Trust increased scale to participate in the market. The market dynamics have changed markedly in recent years with the inflationary environment and increase in interest rates leading to an increase in 90+ day arrears in the portfolio.

While 90+ day arrears have increased they remain low. Increased macroeconomic risks has led to the Manager increasing the allocation to Investment Grade securities providing increased levels of protection through bond subordination.

The full report can be obtained from the IIR and GCI websites.

Neuberger Berman Global High Yield Fund – Formerly NB Global Corporate Income Trust

On 10 May 2024, NBI was suspended from trading on the ASX before being delisted on 15 May. At a unitholder meeting in February 2024, unitholders overwhelmingly voted in favour of delisting from the ASX and operating the Trust as an unlisted unit trust.

The performance of the Trust has been negatively impacted by the macroeconomic environment. The inflationary environment led to one of the fastest pace cash rate rises by central banks globally. With high yield bonds being predominantly fixed rate, this resulted in high yields bond prices experiencing significant declines in 2022 and investors allocating to other asset classes.

This was the key driver of the discount at which the Trust traded with the efforts of the Manager, including a return of capital, not making a dent on the trading price of the Trust in relation to the NAV.

The Trust’s name has been changed to Neuberger Berman Global High Yield Fund. The unlisted trust provides daily liquidity, however to facilitate the orderly transition to the unlisted structure there will be a transition fee applied to redemptions during the 12-months post delisting. The unlisted trust structure enables investors to enter and exit at NAV (after the transition period), subject to a buy/sell spread of 0.2%/0.2%.

This removes the impediment that investors have experienced in the listed vehicle and was the key reason for unitholders voting in favour of the change in structure.

During the month we published an update report for the Trust. We continue to hold the Manager in high regard and believe during a difficult landscape for high yield bonds, actively managed portfolios are preferred to broader market exposure to protect from downside risk. The Manager has one of the larger teams in the market with a focus on credit selection through bottom-up, fundamental company analysis.

The detailed analysis provides the ability for the Manager to avoid defaults and take advantage of improved risk-adjusted returns where the Manager’s internal rating differs form the rating assigned by a rating agency. The focus on credit quality is highlighted by the number of defaults experienced by the portfolio since inception compared to the broader market – 6 for the Trust
versus 362 for the broader market.

A copy of the report is available on the IIR and Neuberger Berman Global High Yield Fund websites.

For more market news from the month past, see the Report attached (above).

Independent Investment Research, “IIR”, is an independent investment research house based in Australia and the United States. IIR specialises in the analysis of high quality commissioned research for Brokers, Family Offices and Fund Managers. IIR distributes its research in Asia, United States and the Americas. IIR does not participate in any corporate or capital raising activity and therefore it does not have any inherent bias that may result from research that is linked to any corporate/ capital raising activity.

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This publication has been prepared by Independent Investment Research (Aust) Pty Limited trading as Independent Investment Research (“IIR”) (ABN 11 152 172 079), an corporate authorised representative of Australian Financial Services Licensee (AFSL no. 410381. IIR has been commissioned to prepare this independent research report (the “Report”) and will receive fees for its preparation. Each company specified in the Report (the “Participants”) has provided IIR with information about its current activities. While the information contained in this publication has been prepared with all reasonable care from sources that IIR believes are reliable, no responsibility or liability is accepted by IIR for any errors, omissions or misstatements however caused. In the event that updated or additional information is issued by the “Participants”, subsequent to this publication, IIR is under no obligation to provide further research unless commissioned to do so. Any opinions, forecasts or recommendations reflects the judgment and assumptions of IIR as at the date of publication and may change without notice. IIR and each Participant in the Report, their officers, agents and employees exclude all liability whatsoever, in negligence or otherwise, for any loss or damage relating to this document to the full extent permitted by law. This publication is not and should not be construed as, an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Any opinion contained in the Report is unsolicited general information only. Neither IIR nor the Participants are aware that any recipient intends to rely on this Report or of the manner in which a recipient intends to use it. In preparing our information, it is not possible to take into consideration the investment objectives, financial situation or particular needs of any individual recipient. Investors should obtain individual financial advice from their investment advisor to determine whether opinions or recommendations (if any) contained in this publication are appropriate to their investment objectives, financial situation or particular needs before acting on such opinions or recommendations. This report is intended for the residents of Australia. It is not intended for any person(s) who is resident of any other country. This document does not constitute an offer of services in jurisdictions where IIR or its affiliates do not have the necessary licenses. IIR and/or the Participant, their officers, employees or its related bodies corporate may, from time to time hold positions in any securities included in this Report and may buy or sell such securities or engage in other transactions involving such securities. IIR and the Participant, their directors and associates declare that from time to time they may hold interests in and/or earn brokerage, fees or other benefits from the securities mentioned in this publication.

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