NBXG: Share Price And Net Asset Value Divergence Creates Opportunity

Summary

NBXG launched earlier this year, and it’s time to revisit; they have provided a more in-depth look into their holdings.

Since its launch, the fund’s NAV has increased as we get the usual share price slump.

This divergence sets us up for the classic discounts we often look for in the closed-end funds’ space.

This idea was discussed in more depth with members of my private investing community, CEF/ETF Income Laboratory. Learn More »

imaginima/E+ via Getty Images Written by Nick Ackerman, co-produced by Stanford Chemist

Neuberger Berman Next Generation Connectivity Fund Inc ( NBXG ) has been busy. It has been busy providing impressive returns to investors via distributions, and the NAV has been appreciating. As I concluded with my previous coverage, this is a tech-oriented fund offered by a fund sponsor that I was hesitant to jump into. Simply put, I just wasn’t familiar with Neuberger Berman and their tech/growth track record. NBXG is certainly an interesting fund. Now that we are seeing the way they are positioning, we are one step closer to being able to make it a possible investment. My reservation is that I’m less familiar with Neuberger Berman in the CEF space with a more tech-oriented portfolio. They are certainly a large operation, but my familiarity with them just isn’t as clear as it is with something like BlackRock ( BLK ). With BlackRock, I’d typically give the benefit of the doubt. For NB, I would feel more comfortable giving it a longer trading history. I would also like to see more information on the fund as well, such as something that an Annual or Semi-Annual Report could give us. Of course, that will all come in time as well. They’ve proven me wrong to be skeptical so far. With that being said, the share price has still declined since its launch. Therefore, reiterating the fact that CEF IPOs are generally better to be avoided. On a NAV basis, it has delivered results to shareholders. The outcome of the NAV is exactly what the managers have more control over via investing successfully. The Basics

1-Year Z-score: N/A

Discount: 9.79%

Distribution Yield: 6.14%

Expense Ratio: 1.30% (estimate)

Leverage: N/A

NBXG launched on May 26th, 2021, so it might still be too new for some investors.

The fund is a “non-diversified, limited-term closed-end management investment company focused on next-generation mobile network connectivity and technology.” They have no focus on U.S. or non-U.S. companies – instead, they are investing where they see fit. This also includes any market cap. Although, they do limit themselves to mostly equity investments.

With this focus, they are more oriented towards tech. Admittedly, with a few surprises in their portfolio as well. Their last fact sheet put the total number of holdings at 57. That is quite a narrow list but has been working out thus far.

Despite my hesitation to invest, there were many other investors it would seem that were ready and willing to put new capital to work in this type of fund. They raised a fairly sizeable amount of assets of $1.5 billion. This has grown to total managed assets of around $1.624 billion at this time. The fund doesn’t intend to utilize leverage but leaves the door open in their prospectus . The Fund currently does not intend to borrow money or issue debt securities or preferred shares. The Fund is, however, permitted by the Investment Company Act of 1940, as amended (the “1940 Act”), to borrow money or issue debt securities in an amount up to 33 1/3% of its Managed Assets (defined below) (50% of its net assets), or issue preferred shares in an amount up to 50% of its Managed Assets (100% of its net assets). If the Fund uses a combination of borrowing money and issuing preferred shares, the maximum allowable leverage will be between 33 1/3% and 50% (but in no event more than 50%) of the Fund’s Managed Assets based on the relative amounts borrowed or preferred shares issued. Additionally, we haven’t seen an annual or semi-annual report. That means no expense ratio has been calculated yet, at least not anywhere that we can see. Their site is rather lacking in terms of transparency on the fund. Most of the data is derived from CEFConnect, the prospectus or the sole fact sheet we have so far. They estimate that the expense ratio should be around 1.3%. (Source – Prospectus)

Since 2018, every CEF I’ve seen launched has been a limited term. […]

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