Nomura Funds Ireland –
Corporate Hybrid Bond Fund

Strategy Overview

Corporate Hybrid Bonds are a growing (and under-invested) asset class; it offers attractive, high yield-like income and total return levels from strong, investment grade credits. All issuers are investment grade-rated. Hybrid bonds are subordinate to senior debt in the capital structure, long-dated or perpetual bonds that are callable – typically 5-10 years from issuance – and have deferrable coupons. These features make corporate hybrids attractive for companies to issue, as they help to bolster the issuers’ credit ratings, offer tax advantages and can lower the average weighted cost of capital (WACC). However, issuers are highly incentivised to pay coupons and honour early call dates that investors demand. We believe investors are being over-compensated for what is a relatively simple and bondholder-friendly structure. Our active approach is led by industry veteran Julian Marks, a pioneer of institutional investment in Corporate Hybrids.

Benefits and Differentiators

• Attractive yield levels, given currently historically low default rates.
• Active, long term, fundamentals-based investment approach, implemented by an experienced team.
• Sustainability integrated with the aim to contribute to reduction of greenhouse gas (GHG) emissions and improve risk-adjusted returns.
• SFDR* Classification: Article 8

*EU Sustainable Finance Disclosure Regulation.

Further details of the ESG process is available under “Sustainability-related disclosure”.

Investment Approach

• Actively managed, fundamentals-based credit research drives portfolio construction.
• Particular focus on bond structure and the probability of calls being honoured.
• Sustainability integration through:
  • Top-down full exclusion of tobacco producers, companies involved in controversial weapons and companies deemed to be in violation of UNGC and OECD guidelines.
  • Use of proprietary credit ESG scoring model and ESG factors integration in selecting issuers and evaluating risk profile.
• Contribution to reduction of GHG emissions by assessing issuers’ decarbonisation plans and emission trend as well as conducting engagement.
• The Portfolio is concentrated and focused on ‘best ideas’. Typically, 30-35 issuers and 6-9 industries.
  Currency risk hedged.

Potential Significant Risks

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.

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Sustainability-related disclosure

Nomura Funds Ireland - Corporate Hybrid Bond Fund (the "Sub-Fund")

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Fund	ISIN	Annual Report	Semi-annual Report	Fact Sheet	Sales Prospectus	PRIIPs KIDs (English)
Class A EUR	IE000LNSBZ39
Class A USD*	IE000B8C3LB6
Class F EUR	IE000X576WJ6
Class I EUR	IE000PY311L1
Class I USD*	IE00024C7HT9

* Please note these share classes are available for investment but have not yet launched.

A German version of the prospectus can be found here.

The English version of the prospectus is legally binding.

The table comprises a selection of the current available share classes (partly not yet active) for the stated Nomura Funds Ireland plc. mutual fund.

As per January 2024

A complete overview of all available share classes and documents of the Nomura Funds Ireland plc can be found here. 

(Please note that the link will access a website for contents of we assume no responsibility and to which our data protection rules do not apply.)

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