BBH Structured Fixed Income Quarterly Strategy Update – 3Q 2021

September 30, 2021
Portfolio Managers, Neil Hohmann, Chris Ling and Andrew Hofer provide an analysis of the investment environment and most recent quarter-end results of the Structured Fixed Income strategy.

Amidst Tapering and Tights, Structured Credit Stands Out

Structured credit sectors enjoyed solid returns in the third quarter in relation to investment grade credit and the broad fixed income market. Non-traditional ABS performed well, sheltered by low rate durations and favored with high carry. BBH’s Structured Strategy Composite – a representative portfolio of primarily investment grade ABS – returned 102bp1 (see Exhibit I). Similarly, indices for CLOs and non-agency CMBS returned 50bp and 21bp, respectively. The Aggregate and Corporate Indices, with their longer rate durations, faced a tougher return environment last quarter – they gained just 10bp and 7bp respectively – as the U.S. yield curve steepened in tandem with the Federal Reserve’s advancing its tapering plans. U.S. ten-year yields ended the quarter 2 bp higher at 1.49%. Among the main spread sectors, agency MBS turned in the worst showing last quarter. Its Index declined 28bp from a triple blow of higher rates, elevated volatility, and expedited tapering.


Exhibit I: Quarterly Structured Sector Roundup – Table outlining key credit metrics for BBH Structured Composite versus various credit indexes. BBH’s Structured Strategy Composite – a representative portfolio of primarily investment grade ABS – returned 102bp. Similarly, indices for CLOs and non-agency CMBS returned 50bp and 21bp, respectively. The Aggregate and Corporate Indices, with their longer rate durations, faced a tougher return environment last quarter – they gained just 10bp and 7bp respectively – as the U.S. yield curve steepened in tandem with the Federal Reserve’s advancing its tapering plans. U.S. ten-year yields ended the quarter 2 bp higher at 1.49%. Among the main spread sectors, agency MBS turned in the worst showing last quarter. Its Index declined 28bp from a triple blow of higher rates, elevated volatility, and expedited tapering. Data reported as of September 30, 2021.

Structured credit sectors remain well-placed to outperform ahead. Their yield and spread compensation are considerably higher than comparable corporate and agency indices, with little interest rate exposure. BBH’s Structured strategy composite has returned 4.49% (gross) this year, even as the bulk of the fixed income market is in loss for 2021. A representative account in the BBH Structured strategy still offers a 4.2% yield today on a high-quality two-year duration investment-grade portfolio that’s diversified evenly across more than 20 asset types.

Technicals and value: non-traditional ABS still hits the trifecta of favorable technicals, compensation, and credit fundamentals

Major market developments in the third quarter included the Fed firming its tapering plans, an upsurge in U.S. COVID-19 cases that dampened economic recovery, a record issuance pace in structured credit and high yield corporate bond markets, and spillover from the liquidity crisis of Chinese real estate developer Evergrande. We also explore these in our third quarter Taxable Fixed Income Quarterly, which we invite you to read. None of these though changed the valuation picture in fixed income very much. Yields and spreads – for Treasuries, corporates, and agency MBS – still linger at the bottom decile of their modern-era levels. Value in fixed income remains confined to niches of the corporate bond market and large parts of the structured credit market that are distinguished by smaller investor numbers and heavier issuance, necessitating higher compensation. We also note potential value in certain “rising star” credits poised for near-term ratings upgrade.

Federal Reserve Chairman Powell announced in August that MBS and Treasury purchases could begin declining as early as November and surprised the market with a speedier taper pace – purchases could cease outright by the middle of next year.  Monthly Treasury and MBS purchases will initially taper by $10b and $5b respectively. At the Jackson Hole conference, Powell made an important clarification that “the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff”, i.e., the Fed may hold off on raising the Fed Funds rate until late 2022 or 2023. In coming months, the U.S. yield curve may steepen more – with rising intermediate and long rates – before flattening in 2023 and 2024 as expected in a normal rate hike cycle.  Carrying more duration unhedged continues to be a potentially expensive position.

History suggests declining Fed purchases may not just pressure the level of Treasury rates, but also widen spreads in agency MBS. Option-adjusted spread (OAS) in the MBS Index have widened 25bps over the last 3 months, partly pricing in the coming taper. As in the last tapering cycle though, we expect OAS could continue to widen further for months after the Fed starts running down its purchases. Accordingly, we see challenging value today in agency mortgages.

Change abounds though in the mortgage market. In September, the FHFA – the regulator for U.S. housing agencies Fannie Mae and Freddie Mac – announced several major changes. They greatly reduced the agencies’ regulatory capital requirements, expanded the size of private risk participations beneath agency MBS pools, and relaxed many limits on residential and multifamily lending. The Biden administration is clearly promoting the expansion of Fannie and Freddie’s independence and lending activity. On the margin, these changes should lead to greater supply and diversity in both the agencies’ guaranteed and non-guaranteed bond issuance.

With the torrid demand for bonds, attractive opportunities have become scarce. Yet across much of the structured credit market and in certain corporate segments, shorter duration bonds can still offer compelling value. For context, we reprise below our usual table outlining technical, compensation and credit outlooks across fixed income sectors. Red shading in a box conveys conditions worse than historical norms; green suggests better-than-normal conditions, and yellow more normal conditions.

As you can see in Exhibit II, Treasury and agency mortgage sectors are still mostly red. The Fed’s prodigious holdings of U.S. government and agency bonds suppress intermediate and longer maturity interest rates below where they would otherwise be. Even when tapering begins, Fed holdings will continue to rise. And the fundamentals aren’t particularly supportive for owning these assets: the U.S. sovereign rating is on a downslope, and the agency MBS market faces further prospect for duration extension if rates rise.


Exhibit II: Structured Credit Sectors Offer a Balance of Good Technicals, Compensation, and Credit Performance – Table outlining qualitative and quantitative technical factors, yields, spreads, durations, ratings and credit outlooks across fixed income sectors. Treasury, agency mortgage and corporate credit sectors are still exhibiting technical and fundamental conditions worse than historical norms. Data reported as of September 30, 2021.

The Fed’s dominance of Treasury and agency markets presses U.S. and foreign investors into the credit markets, forcing a similarly challenging peak demand technical for credit investors. Spreads for investment grade (IG) and high yield (HY) corporate bonds are at record tights, now backstopped by the expectation the Fed will intervene here in any turmoil. Corporate technicals and compensation are consequently painted in our table with a great deal of red. Credit fundamentals at least continue to improve with economic recovery but that does not alter daunting spreads and technicals. We continue to identify value in the Corporate market in certain niches and in upgrade candidates, but it is telling that we assess just 1% of the IG corporate index to be a buy today based on valuation levels.

The $3 trillion Structured Credit market is sheltered from the deluge of demand for Treasuries, corporates, municipals, and agency MBS. The shorter duration of structured notes is also an advantage at this point in a rate hike cycle. Structured credit has historically been passed over by the Fed, foreign buyers, and the larger U.S. managers. There are informational and structural barriers that keep fewer investors in these sectors and new buyers out, so yield levels are more appealing, are closer to their historic norms, and offer a sizable compensation boost of 50bp to 400bp over similarly rated, more familiar credit market offerings.

The two historical mainstays of the ABS market – auto ABS and credit card ABS – are an exception. They, like corporate bonds, have been swamped with widespread demand. Index yields for these mostly AAA, staple ABS asset types are below half a percent. On the non-traditional2 side of the ABS market though (where lies the bulk of its size, issuance, and growth) compensation remains attractive. The J.P. Morgan Other ABS index yield today is 2.7%. Credit fundamental are also very strong. Non-traditional ABS is accordingly the only fixed income sector that screens green across the board for 2021. Here, BBH continues to find the most value within structured credit.

Finally, CMBS and CLOs also benefit, but to a lesser degree, from a narrower investor base. New issuance is at a record pace in these sectors too. These characteristics help keep compensation in parts of these sectors compelling. But investors here need to be discriminating on value and fundamentals with a focus on distinctions across credits.

Securitization market activity: record-setting issuance met with strong demand

In 2021, the story of the structured fixed income market is record-setting issuance accommodated by sizable market demand. Investors are showing at least enough appetite that spreads continue to narrow across many asset types. No doubt structured securities’ strong credit ratings, solid fundamentals, and a dearth of appealing valuation opportunities away are all contributing to steady investor absorption of heavy issuance volume.

In ABS, the third quarter witnessed the greatest issuance since 2015, at $74 billion. YTD issuance is $201 billion, on pace for an annual record. Notably, seventy percent of this issuance now falls in the non-traditional category, in the thirty-odd ABS asset types away from the historical mainstays of prime auto and bank credit cards. The number of issuers and market prominence of these historically smaller market segments (e.g., equipment lease, personal consumer loan, venture debt, small business, insurance-linked, tax lien, servicer advance, and esoterics) just continue to grow.

In CMBS, YTD 2021 new issuance of $102 billion has, similarly, already eclipsed the entirety of $65 billion issued in 2020 and is on track to surpass 2019. Compositionally, issuance of single-asset/single-borrower (SASB) and commercial real estate (CRE) CLO deals continues to grow in prevalence versus the traditionally predominant conduit deals. In 2015, conduit deals accounted for 62% of issuance, yet comprise just 22% in the first nine months of 2021. The increasing preference away from conduit issuance is being driven by fewer conduit maturities coming due, the prepayment flexibility offered to borrowers, the diversification away from warehouse line and reverse repo financing in the case of CRE CLOs, and lower financing costs versus fixed-rate financing while short-term rates hover near the zero lower bound. With CRE fundamentals steadily improving and compensation relatively appealing, the new issuance has been absorbed by investors while spreads have continued to narrow throughout the year.

CLO supply is continuing its torrid pace into Q4, and we expect particular focus on refinancing and resets before year-end due to the LIBOR phase-out. There continues to be demand for all tranches; however, steady supply has prevented significant tightening in recent weeks and mezzanine tranches have been experiencing some weakness, causing some tranches to price at wider spreads. There has not been a SOFR-linked CLO yet, but many in the CLO market anticipate an approximate 10 to 20 bps spread concession, similar to concession levels in the loan and ABS markets.

With the heavy issuance and more specialized investor base, the spread environment for structured credit remains quite compelling for investors over Treasuries and index-eligible corporate bonds (see Exhibit III). Valuation levels of non-traditional ABS sectors and CMBS remain comfortably above alternatives available in popular indexes like the Bloomberg U.S. Aggregate Index, Bloomberg Corporate Index and the Bloomberg ABS Index. ABS spreads were stable quarter-over-quarter, while spreads in most segments have narrowed year-to-date.

In the CMBS index, benchmark conduit AAA spreads were slightly tighter in Q3 with AAA spreads at 68 bps and 2 bps tighter year-to-date. BBBs widened 62 bps to 320 bps (along with the summer pickup in COVID activity) but have still tightened year-to-date. SASB senior AAA and BBB spreads remained stable this quarter at 85 bps and 160 bps, respectively. CRE CLOs offered spreads of 115 bps for AAA-rated classes and 290 bps for BBB-rated classes at quarter-end.

With the steady absorption of record supply, market participants are clearly embracing these higher-yielding segments of the fixed income market. They stand in stark contrast to the unappealing valuations and higher rate duration exposures offered in the more commonly followed segments of the high-grade and high yield markets. We expect healthy issuance to continue and that, with proper vigilance, structured products will be fertile ground for future opportunities.


Exhibit III: Non-Traditional Structured Compensation Remains Attractive – Bar chart comparing the spreads of corporate bonds to the spreads of Traditional and Non-traditional structured bonds. Comparisons are grouped by credit rating. With the heavy issuance and more specialized investor base, the spread environment for structured credit remains quite compelling for investors over Treasuries and index-eligible corporate bonds. Data reported as of June 30, 2021 and September 30, 2021. The chart also shows the changes from the previous quarter for each category.

Purchases and trade activity

We continue to find opportunities in newer segments of the bond market that other investors often miss to their detriment for lack of familiarity, smaller issuance size, non-major credit ratings, or absence from the bond indices. We thought we would profile a few here – of particular note are a continued raft of highly-attractive bonds financing business development companies (BDCs), as well the first issue of a new single-manager category of collateralized fund obligations (CFOs).

For the last decade, we have found business development companies (BDC) debt securities to have compelling yield and credit characteristics. BDCs are publicly-registered, specialty-lending companies that provide capital to lower middle market and middle market companies (EBITDA of $10 - $250 million). BDCs are required by statute to maintain an unusually low leverage within the finance industry – less than 2.0x debt to equity. Consequently, BDCs exhibit impressive durability; the historic loss rate in underlying loans is generally less than 1%. Leveraged loan portfolio losses would have to exceed an inconceivable 40% to impair BDC debt. The sector performed through the COVID pandemic without stress or downgrades. Many BDCs are operated by seasoned direct lending companies with established histories of solid performance. During the quarter, we identified several compelling BDC debt opportunities for client portfolios. We participated in Trinity Capital’s new issue 5-year bond (debt-to-equity ratio of only 1.0 times) at a spread of Treasuries + 361 basis points. In addition, we participated in Apollo Investment Corporation’s new issue 5-year bond (debt-to-equity leverage ratio of just 1.3) that came at a spread of Treasuries + 375 basis points.

Additionally, in the middle market lending space, we participated in a new-issue CLO by Owl Rock Capital Private Fund Advisors. We know Owl Rock well as an issuer of unsecured BDC debt. The CLO is comprised of a portfolio of first lien loans to middle market borrowers that had even lower leverage and higher EBITDA, on average, than the company’s BDC portfolios. Owl Rock is retaining the equity, creating an unusually low-leverage structure for CLO investors. The deal possesses strong structural protections, and the company’s management team and performance record are impressive. We focused on the notes rated AAA, single-A and BBB, which came at attractive spreads of +135, +255, and +370 over LIBOR, respectively.

Ares Capital Management brought a CFO to market during the quarter with a strong 30-year track record of private equity and credit performance, a durable structure and compelling valuation. It is the first of a series of pending CFO transactions by single managers, the issuance was amply collateralized by the partnership interests in three well-established fund products managed by Ares, supplemented with ample liquid asset pool, liquidity facility and interest reserve to assure timely payment of interest. The equity position beneath our debt is substantial - our stress analysis reveals that the diversified collateral pool would need to experience lifetime average IRRs as low as -2% for our notes to experience any interest or principal shortfall – an exceedingly remote outcome given the typical 15%-area return for the funds over their long history. We participated primarily in the BBB-rated 6-year notes at an attractive spread to Treasuries of over 500 basis points.

In other notable buys, we participated in three new CMBS deals which illustrate the outsized value available in certain segments of this market. CRPT 2021-RETL is a single-asset, single borrower (SASB) transaction secured by 111 anchored retail properties spread over 27 states, with the debt representing a very low loan-to-value ratio of just 58% AAA, AA, and A-rated classes offered spreads of 140 bps, 190 bps, and 230 bps over LIBOR, respectively.

Similarly, SASB CMBS transaction GSMS 2021-IP is secured by the International Plaza, a 1.23 million SF A++ super regional mall, located in Tampa, FL. Carrying a very low loan-to value leverage ratio of 49%, we invested in the AAA, AA, and A-rated notes at spreads of 95 bps, 115 bps, and 155 bps over LIBOR, respectively.

We also invested in the AAA-rated notes of a static CRE CLO, PFP 2021-8, at an attractive spread of 100 bps over LIBOR. Secured by loan assets on geographically diverse pool of 55 properties, the majority of which are multifamily, the transaction had low “As-Is” loan-to-value leverage ratio of just 69%.

The ABS and CLO markets brought other compelling opportunities that we purchased during the quarter. Symphony Asset Management LLC brought a CLO with appealing valuations of +110 over LIBOR on the notes rated AAA and +250 over LIBOR on the A-rated notes. Symphony is a subsidiary of Nuveen with an established presence in the CLO market and a highly regarded management team. The deal was collateralized by a portfolio of leveraged loans with strong structural protections.

We also participated in the first recurring revenue ABS deal brought by Vista Credit Partners. The deal is a static pool of recurring revenue loans to lower middle market SAAS software. Vista Credit is a software and technology lender that was founded in 2013 and is the credit arm of Vista Equity Partners, a leading software and technology investor. Similar to other recurring revenue ABS issuers, Vista has a spotless recurring revenue lending record There is considerable credit support for the BBB- and BB-rated notes of 26% and 18%, respectively, in the form of subordination and 18% overcollateralization. We purchased the BBB- and BB-rated notes at spreads of +260 and +520 over LIBOR, respectively.

CIM Real Estate Finance Trust Inc. (CMFT) issued its first triple net lease ABS, CIMNL 2021-1, backed by single tenant net lease properties. CMFT is an externally managed, non-exchange traded REIT founded in 2010 with a current NAV of $2.6bn of net lease properties across 46 states. The parent company, CIM Group, was founded in 1994 as an investor and operator focused on real estate, infrastructure and credit. CIM Group has $28 billion in assets under management, over 1,000 employees, and never defaulted on a loan or handed a property to a lender. CIM currently has over $5.6bn and 25.2m square feet of net lease assets with 94.6% occupancy. We participated in the 7-year, single-A rated Class A-5 that was issued at a spread of 192 bps to Treasuries.

Conclusion

Structured credit markets, particularly non-traditional ABS, stand out as an appealing option for investors seeking compelling spreads, strong fundamentals, and protection against rate- or spread-driven bond revaluations. Issuance has been strong, yet spreads remain stable or rally reflecting patient absorption of the deluge of supply. We expect issuance to remain strong, as buyers find appeal in the spreads offered and issuers increasingly find the capital markets to be an attractive source for finance company funding away from their bank lenders. Structured credit offers investors a fertile opportunity set amidst the desert of value in fixed income. BBH is well-positioned to navigate this environment as a large and established participant in these markets with the deepest relationships with issuers and dealers. We look forward to finding the next opportunities for your portfolio and discussing with you these and the continuing evolution of the market.

Sincerely,

Portfolio Management Team

Neil Hohmann, PhD
Head of Structured Products
    
Chris Ling
Structured Products Trading
    
Andrew P. Hofer
Head of Taxable Fixed Income

 
Performance
As of September 30, 2021
  Total Returns Average Annual Total Returns
Composite/Benchmark 3 Mo.*
YTD* 1 Yr. 3 Yr. 5 Yr.
Since Inception
BBH Structured Fixed Income Composite (Gross of Fees) 1.02% 4.49% 6.96% 5.02%
5.02%
4.49%
BBH Structured Fixed Income Composite (Net of Fees)
0.93% 4.42% 6.59% 4.66% 4.65% 4.60%
Bloomberg US ABS Index 0.05% 0.23% 0.59% 3.50% 2.37% 2.53%
*Returns are not annualized. BBH Structured Fixed Income Composite inception date is 01/01/2016.
Sources: BBH & Co. and Bloomberg
Past performance does not guarantee future results.
Bloomberg ABS Index is the ABS component of the Bloomberg US Aggregate index and is comprised of credit and charge card receivables, autos loan receivables, and utility receivables with at least an average life of one year, $500 million deal size and $25 million tranche size and an investment grade rating (Baa3/BBB- or higher) by at least two NRSROs. The index is not available for direct investment.

1 One “basis point” or “bp” is 1/100th of a percent (0.01% or 0.0001).
2 Traditional ABS include prime auto backed loans, credit cards and student loans (FFELP). Non-traditional ABS include ABS backed by other collateral types.

 

Risks

Investing in the bond market is subject to certain risks including market, interest-rate, issuer, credit, and inflation risk; investments may be worth more or less than the original cost when redeemed. Mortgage-backed and asset-backed securities have prepayment and extension risks.

Single-Asset, Single-Borrower (SASB) lacks the diversification of a transaction backed by multiple loans since performance is concentrated in one commercial property. SASBs may be less liquid in the secondary market than loans backed by multiple commercial properties.

Asset-Backed Securities (“ABS”) are subject to risks due to defaults by the borrowers; failure of the issuer or servicer to perform; the variability in cash flows due to amortization or acceleration features; changes in interest rates which may influence the prepayments of the underlying securities; misrepresentation of asset quality, value or inadequate controls over disbursements and receipts; and the ABS being structured in ways that give certain investors less credit risk protection than others.

Below investment grade bonds, commonly known as junk bonds, are subject to a high level of credit and market risks.

Foreign investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards.

The Structured Fixed Income Strategy Representative Account is a single representative account that invests in the Structured Fixed Income strategy. It is the account whose investment guidelines allow the greatest flexibility to express active management positions. It is managed with the same investment objectives and employs substantially the same investment philosophy and processes as the proposed investment strategy.

The securities discussed do not represent all of the securities purchased, sold or recommended for advisory clients and you should not assume that investments in the securities were or will be profitable.

Quality ratings reflect the credit quality of the underlying issues in the fund portfolio and not of the fund itself.  Issuers with credit ratings of AA or better are considered to be of high credit quality, with little risk of issuer failure. Issuers with credit ratings of BBB or better are considered to be of good credit quality, with adequate capacity to meet financial commitments. Issuers with credit ratings below BBB are considered to be of good credit quality, with adequate capacity to meet financial commitments. Issuers with credit ratings below BBB are considered speculative in nature  and are vulnerable to the possibility of issuer failure or business interruption. The Not Rated category applies to Non-Government related securities that could be rated but have no rating from Standard and Poor’s or Moody’s. Not Rated securities may have ratings from other nationally recognized statistical recognized statistical rating organizations.

Brown Brothers Harriman Investment Management (“IM”), a division of Brown Brothers Harriman & Co (“BBH”), claims compliance with the Global Investment Performance Standards (GIPS®). GIPS® is a registered trademark of CFA Institute. CFA Institute does not endorse or promote this organization, nor does it warrant the accuracy or quality of the content contained herein.

To receive additional information regarding IM, including a GIPS Composite Report for the strategy, contact John Ackler at 212 493-8247 or via email at john.ackler@bbh.com.

Gross of fee performance results for this composite do not reflect the deduction of investment advisory fees. Actual returns will be reduced by such fees. “Net” of fees performance results reflect the deduction of the maximum investment advisory fees. Returns include all dividends and interest, other income, realized and unrealized gain, are net of all brokerage commissions, execution costs, and without provision for federal or state income taxes. Results will vary among client accounts. Performance calculated in U.S. dollars.

The objective of our Structured Fixed Income Strategy is to deliver excellent returns in excess of industry benchmarks through market cycles. The Composite includes all fully discretionary fee-paying accounts with an initial investment equal to or greater than $10 million that are managed to the Structured Fixed Income strategy. The target duration may range from 2 to 6 years. Investments are focused on asset-backed and related structured fixed income securities. Holdings are primarily investment grade but non-investment grade securities may be held. Investments may include non-dollar fixed income.

Standard deviation measures the historical volatility of a returns. The higher the standard deviation, the greater the volatility. The Sharpe ratio is the average return earned in excess of the risk-free rate (the Fed Funds rate).

Definitions

Bloomberg US Investment Grade Corporate Bond Index (BBG IG Corp) represents the corporate bonds in the Bloomberg US Aggregate Bond Index, and are USD denominated, investment-grade (rated Baa3 or above by Moody’s), fixed-rate, corporate bonds with maturities of 1 year or more.

Bloomberg US Corporate High Yield Index (BBG HY Corp) is an unmanaged index that is comprised of issues that meet the following criteria: at least $150 million par value outstanding, maximum credit rating of Ba1 (including defaulted issues) and at least one year to maturity.

The Bloomberg US Aggregate Bond Index represents USD-denominated, investment-grade (rated Baa3 or above by Moody’s), fixed-rate, and taxable areas of the bond market. This is the broadest measure of the taxable U.S. bond market, including most Treasury, agency, corporate, mortgage-backed, asset-backed, and international dollar-denominated issues, all with maturities of 1 year or more.

Bloomberg ABS Index (BBG ABS) is the ABS component of the Bloomberg US Aggregate Index. The ABS Index has three subsectors: credit and charge cards, autos and utility. The index includes pass-through, bullet, and controlled amortization structures. The ABS Index includes only the senior class of each ABS issue and the ERISA-eligible B and C tranche.

Bloomberg Non-AAA ABS Index (BBG Non-AAA ABS) is the non-AAA ABS component of the Bloomberg U.S. Aggregate Bond Index, a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $300 million par amount outstanding and with at least one year to final maturity.

Bloomberg Agency Mortgage-Backed Securities (BBG MBS) Index is the Agency Mortgage-Backed Securities component of the Bloomberg US Aggregate Bond Index, a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and nonconvertible investment grade debt issues with at least $300 million par amount outstanding and with at least one year to final maturity.

Bloomberg CMBS Index (BBG CMBS) is the CMBS component of the Bloomberg US Aggregate Bond Index, a market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $300 million par amount outstanding and with at least one year to final maturity.

JP Morgan Other ABS Index (JPM Other ABS) represents ABS backed by consumer loans, timeshare, containers, franchise, settlement, stranded assets, tax liens, insurance premium, railcar leases, servicing advances and miscellaneous esoteric assets (that also meet all the Index eligibility criteria) of The JP Morgan ABS Index. The JP Morgan ABS Index is a benchmark that represents the market of US dollar denominated, tradable ABS instruments. The ABS Index contains 20 different sub-indices separated by industry sector and fixed and floating bond type. The aggregate index represents over 2000 instruments at a total market value close to $500 trillion dollars; an estimated 70% of the entire $680 billion outstanding in the US ABS market.

JP Morgan CLO Index (JPM CLO) is a market value weighted benchmark tracking US dollar denominated broadly-syndicated, arbitrage CLOs. The index is comprised solely of cash, arbitrage CLOs backed by broadly syndicated leveraged loans. All CLOs included in the index must have a closing date that is on or after January 1, 2004. There are no weighted average life (WAL) limitations. There are no minimum tranche size restrictions and includes only tranches originally rated from AAA/Aaa through BB-/Ba3.

“Bloomberg®” and the Bloomberg indexes are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by Brown Brothers Harriman & Co (BBH). Bloomberg is not affiliated with BBH, and Bloomberg does not approve, endorse, review, or recommend the BBH Structured Fixed Income Strategy. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to the fund.

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries. This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners. © Brown Brothers Harriman & Co. 2021. All rights reserved.

Not FDIC Insured             No Bank Guarantee        May Lose Money

IM-10206-2021-10-27    Exp. Date 01/31/2022

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