Unlocking Income Potential: The Case for Neuberger Berman's Connectivity Fund

Income investors seeking steady payouts in a volatile market may find the Neuberger Berman Next Generation Connectivity Fund (NBXG) compelling. With its $0.10 monthly distribution—translating to a 9.1% annualized yield—the fund offers a rare blend of income and exposure to high-growth tech sectors like AI, 5G, and cloud computing. However, the path to sustaining this payout hinges on navigating risks such as NAV erosion, expense pressures, and tax implications. Here's how to assess whether NBXG's income stream aligns with your long-term goals.

Can the $0.10 Monthly Distribution Survive Market Volatility?

The fund's ability to maintain its distribution depends on two critical factors: NAV stability and expense efficiency.

NAV Trends:

As of April 2025, NBXG's NAV stood at $13.35, down slightly from $13.62 in May 2024, but its discount to market price has widened to -14.3%. A persistent discount could strain distributions if NAV declines further. Income investors must monitor whether the fund's equity-heavy portfolio (92% stocks as of March 2025) can generate capital gains to offset expenses and support payouts.

Expense Overhead:
The fund's expense ratio of 1.81% (as of 2023) remains elevated, eating into returns and potentially squeezing distributable income. While Neuberger Berman's expertise in tech investing is a plus, no updates to the expense ratio for 2025 leave uncertainty about cost management. A rising ratio could jeopardize the $0.10 payout.

Tax Implications: The Hidden Cost of “Free” Income

The allure of a 9% yield dims if distributions include return of capital (ROC). ROC components reduce your cost basis, deferring tax liability but amplifying future capital gains taxes.

Recent Distribution Breakdown:
- The May 2025 distribution of $0.10 was labeled “level,” but historical filings show ROC made up 10–15% of payouts in 2023–2024.
- Key Risk: If NAV continues to lag, ROC could rise, turning “income” into a tax liability trap.

Due Diligence Steps for Income Investors

Before diving in, scrutinize these metrics:

1. NAV Health:
   Track NAV trends closely. A sustained dip below $13 could signal trouble. Compare NAV to the fund's price—wider discounts may present buying opportunities but also warn of structural challenges.

2. Expense Ratio Watch:
   Demand transparency on 2025 expense updates. A rise above 2% would erode returns and distribution sustainability.

3. Distribution Consistency:
   Review quarterly filings to confirm ROC levels. A stable or shrinking ROC component would bolster confidence in the payout's longevity.

4. Sector Exposure:
   NBXG's focus on connectivity and AI aligns with secular growth trends, but tech volatility remains a risk. Diversify holdings to mitigate concentration bets.

The Bottom Line: A High-Reward, High-Risk Income Play

NBXG offers income seekers a rare 9% yield in a low-yield world, backed by a manager with a tech-focused mandate. The fund's 19.85% 1-year return and 64.41% 3-year return outpace benchmarks, suggesting its thesis on connectivity infrastructure holds water.

However, the risks are clear: a widening NAV discount, elevated expenses, and the specter of ROC dilute the payout's appeal. Act only if:
- You can tolerate NAV volatility and tax complexity.
- You're comfortable with the fund's 1.81% expense ratio remaining stable.
- You diversify NBXG within a broader income portfolio.

For the bold income investor, NBXG's blend of yield and growth exposure could be a cornerstone—provided due diligence confirms its distributions are built to last.

Invest wisely, and remember: High yield often comes with high stakes.