Can you give an overview of the team running the fund and your investment process?
The Nomura Corporate Hybrid Bond Fund is managed by a dedicated three-person team with 65+ years combined experience. Julian Marks (Head of Hybrid Bonds, 26 years' experience) serves as Lead Portfolio Manager, supported by Kapish Patel (Co-Portfolio Manager, 14 years) and Virginie Pelle (Senior Analyst, 26 years). The team previously managed the largest corporate hybrid strategy at Neuberger Berman, delivering consistent outperformance.
The investment process employs a long-term, fundamental, value-oriented approach focused on developed market, investment grade non-financial issuers. The team conducts exhaustive bottom-up credit analysis, examining issuer fundamentals, hybrid bond structures, and relative valuations. They stress-test assumptions under various scenarios and carefully review each prospectus to help understand extension and deferral risks.
The team is supported by six dedicated Investment Grade credit analysts (London/Tokyo) who provide deep-dive research on all eligible issuers. Security selection targets bonds trading significantly below fair value, with positions sized based on conviction within risk-controlled guidelines. The strategy maintains 40-50 issuers typically, with meaningful overweights in compelling opportunities. Duration is kept close to benchmark (+/-0.5 years), and all non-EUR currency exposures are fully hedged.
What do you see as the big opportunities and risks for your fund for the rest of the year and moving into 2027? How are you positioned in this environment?
Opportunities:
The corporate hybrid market remains over 100bps wide of fair value relative to other credit markets, offering compelling entry points. The asset class provides high-yield-like returns (EUR yield ~5%, USD~6.5%) from mainly strong investment grade issuers – average issuer rating BBB+/A-. US issuance is accelerating, following Moody's 2024 methodology update granting 50% equity credit, potentially adding $100bn+ from preference share refinancings over time.
Defensive sectors dominate—utilities (39%), energy (21%), telecoms (17%)— as well as global market leaders, offering regulated cashflows and strong pricing power, insulating many from concerns around an economic slowdown, resurgent inflation or the effects of war and tariffs. Extension risk remains mispriced in certain securities, creating alpha opportunities. New issue premiums continue providing 30bps+ annual contribution potential.
Risks:
Rising interest rates could temporarily pressure valuations, though the team's analysis shows extension risk is largely independent of rates due to bond structures. More cyclical sectors, such as real estate and consumer cyclicals require monitoring, although we have limited exposure to these. As always, potential credit deterioration in specific issuers could impact performance, so thorough credit work is key.
Positioning:
The fund is overweight European utilities and telecoms (defensive, tariff-resistant), off-benchmark mispriced issuers (Bayer, Rogers, National Grid), and names suffering home bias (Southern Company, AusNet). We are underweight certain US hybrids, peripheral Eurozone risk, low-quality energy and speculative declining issuers. Cash maintained at ~4% provides flexibility for volatility. The portfolio's 3.31-year duration and BBB average rating position us defensively while capturing compelling relative value.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio?
Southern Company (US Utility): Southern is an A- rated utility but their EUR 1.875% NC27 hybrid trades like BBB- credit, offering significant value. As the 3rd largest US utility with 90% regulated EBITDA and supportive regulatory frameworks, we view rating risk as low. The bond is under-covered by European investors, creating mispricing. Management has committed to maintaining EUR market access, and the low reset spread provides call optionality. The improved credit profile may allow calling without replacement while maintaining equity credit elsewhere.
Canadian Telecoms (Rogers, Bell, Telus): The concentrated oligopoly (88% market share among three players) offers compelling valuations with ~150bps sub/senior spreads versus ~120bps for European telecoms. Recent M&A-driven leverage concerns have pressured spreads, but we expect faster-than-anticipated deleveraging through asset divestments and dividend management. The bonds feature attractive structures including coupon floors and 30-year final maturities. The valuation gap versus European peers is unjustified, driven by limited investor familiarity and non-European issuer discount.
AusNet (Australian Utility): This BBB+ rated network operator with 95% regulated assets was significantly mispriced on extension risk. Their EUR 1.625% NC26 hybrid was ignored by European investors despite structural need to maintain investment grade rating and access to equity credit given high capex requirements and limited AUD funding market depth.
Disclaimer
SFDR Disclosure
The EU Sustainable Finance Disclosure Regulation ("SFDR") entered into force on 10 March 2021. SFDR requires firms to better inform end-investors with regard to the integration of sustainability risks, the consideration of adverse sustainability impacts, the promotion of environmental or social characteristics, and sustainable investment, as applicable. Disclosure of the above for Nomura Funds Ireland and its individual sub-funds can be found in the prospectus. Nomura Corporate Hybrid Bond Fund is an Art. 8 fund under SFDR.
This document was prepared by Nomura Asset Management U.K. Limited and Nomura Asset Management Europe KVG mbH and is issued and distributed by Nomura Asset Management Europe KVG mbH and Nomura Asset Management Europe KVG mbH - UK Branch, from sources it reasonably believes to be accurate and is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Whilst all reasonable steps have been taken to ensure that information contained in this presentation is correct, we do not offer any warranty as to the accuracy or completeness of such information.
Nomura Asset Management Europe KVG mbH is authorised and regulated by the Federal Financial Supervisory Authority (BaFin). Its UK Branch is also authorised and regulated by the Financial Conduct Authority (FCA). The content of this document is considered as minor non-monetary benefit in the meaning of MiFID II and not to be construed as legal, business or tax advice or as a recommendation of any kind. The information in this document is not intended in any way to indicate or guarantee future investment results as the value of investments may go down as well as up. Values may also be affected by exchange rate movements and investors may not get back the full amount originally invested. Before purchasing any investment product, you should read the related risk documentation in order to form your own assessment and judgement and, to make an investment decision. This document may not be reproduced or redistributed, in whole or in part, for any purpose without the written permission of Nomura Asset Management Europe KVG mbH.
This is a marketing communication. Please refer to the prospectus and to the PRIIPs KID or UCITS KIID as appropriate for your relevant jurisdiction before making any final investment decisions.
The fund is a sub-fund of Nomura Funds Ireland plc, which is authorised by the Central Bank of Ireland as an open-ended umbrella investment company with variable capital and segregated liability between its sub-funds, established as an undertaking for Collective Investment in Transferable Securities under the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011. The UCITS fund is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation.
The prospectus, key information document (PRIIPs KID), key investor information document (UCITS KIID) - as appropriate for your relevant jurisdiction - and other fund related materials are available in English and, for the PRIIPs KID, in the official language of the countries in which the fund is available for distribution on the Nomura Asset Management U.K. Ltd. website at https://www.nomura-asset.co.uk/fund-documents/ Nomura Asset Management U.K. Ltd. is authorised and regulated by the Financial Conduct Authority.
Corporate hybrid bonds are more volatile than senior bonds of the same issuers. However, credit default risk is the primary concern, which is partly mitigated by the strength of the issuers and is limited further through our security selection process. Corporate Hybrids are frequently confused with contingent convertible (Coco) bonds, which are issued by banks, but feature none of the write-down clauses or regulatory concerns of that bond type. Currency risk is hedged to within small tolerances.
Sustainability information from investee companies and third-party data providers may be incomplete, inaccurate or unavailable. As a result, there is a risk that we may incorrectly assess a security or issuer, resulting in the incorrect inclusion or exclusion of a security in the portfolio.
A summary of investor rights in English and information on collective redress mechanisms are available at https://www.nomura-asset.co.uk/download/funds/how-to-invest/Summary_of_investor_rights.pdf. Nomura Asset Management U.K. Limited may at any time decide to terminate arrangements it may have made for the marketing of units of a fund in a member state other than its home member state.
