NBXG: Leveraging a Deep Discount in Tech-Heavy Infrastructure to Generate Income in a Rising Rate Environment
In the evolving landscape of income investing, closed-end funds (CEFs) like the Neuberger BermanNBXG-- Next Generation Connectivity Fund (NBXG) offer a compelling blend of arbitrage potential and high-growth sector exposure. As of September 2025, NBXGNBXG-- trades at a -10.08% discount to its net asset value (NAV), a significant spread for a fund focused on next-generation infrastructure and technology[1]. This discount, coupled with a robust 8.1% dividend yield[2], positions NBXG as a unique opportunity for investors seeking to capitalize on market inefficiencies while generating income in a rising rate environment.
Discount Arbitrage: A Structural Advantage
Closed-end funds often trade at discounts or premiums to their NAV due to market sentiment, liquidity constraints, or investor demand for yield. NBXG's current discount of -10.08%[1] suggests undervaluation relative to its underlying assets, which include a diversified portfolio of 194 holdings[3]. This gap creates an arbitrage opportunity for investors who believe the fund's NAV will converge with its market price over time. Historically, NBXG has maintained an average five-year discount of -15.72%[1], indicating a structural tendency for the market to undervalue its assets—a dynamic that could amplify returns if the discount narrows.
The fund's focus on next-generation connectivity infrastructure—including 5G, AI-driven networks, and data centers—adds another layer of appeal. These sectors are poised to benefit from long-term secular trends, such as the global shift toward digital infrastructure and the proliferation of AI technologies[3]. As noted by Seeking Alpha, NBXG's portfolio includes significant allocations to technology (43.56%) and communication services (20.13%)[2], sectors that historically outperform during periods of innovation-driven growth.
Income Generation: Stability Amid Rising Rates
A critical question for income-focused investors is whether NBXG can sustain its $0.10 per share monthly distribution in a rising rate environment. The fund's level distribution policy, which has persisted through recent interest rate hikes from 2020 to 2025[3], suggests a disciplined approach to income generation. While the exact composition of distributions (net investment income, return of capital, etcETC--.) will be clarified post-2025 year-end[3], the fund's ability to maintain payouts reflects its exposure to high-growth companies with recurring revenue streams.
However, the fund's performance during past rate hikes remains a gray area. Over the past five years, NBXG's five-year annualized total return has been negative (-24.27%)[2], a drag attributed to its heavy weighting in high-growth tech stocks, which can underperform during rate-sensitive periods. Yet, its 12-month total return on NAV of 26.87%[1] highlights the potential for recovery as interest rates stabilize or invert. This duality—short-term volatility versus long-term growth—requires investors to balance income stability with sector-specific risks.
Portfolio Resilience: Sector Allocation and Diversification
NBXG's portfolio is structured to mitigate interest rate sensitivity through diversification. While technology (43.56%) and communication services (20.13%) dominate[2], allocations to consumer cyclical (12.41%) and financial services (6.04%)[2] add defensive characteristics. This mix contrasts with pure-play tech CEFs, which may face sharper headwinds during rate hikes. Furthermore, the fund's global exposure—spanning U.S. and non-U.S. companies—reduces regional concentration risk, a factor that could enhance resilience in fragmented markets[3].
Risks and Considerations
Investors must remain cautious of NBXG's structural risks. Its -10.08% discount[1] could widen if market conditions deteriorate, eroding potential arbitrage gains. Additionally, the fund's non-diversified status and focus on high-growth companies expose it to valuation volatility. While its level distribution policy provides income stability, rising interest rates could pressure the fund's borrowing costs, potentially impacting future payouts[3].
Conclusion: A Strategic Play for Income and Arbitrage
For investors with a medium-term horizon, NBXG represents a strategic opportunity to leverage a deep discount in a tech-heavy infrastructure fund while securing an 8.1% yield[2]. Its sector allocations and growth-oriented portfolio position it to benefit from secular trends in connectivity, while the discount offers a margin of safety for arbitrage-minded investors. However, success hinges on monitoring macroeconomic shifts and the fund's ability to navigate interest rate dynamics—a challenge that could test its long-term appeal.
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