By continuing on this site you have agreed to cookies being placed and accessed by this website. More information and adjusting cookie settings.
2016 was a very strong year for global high yield. Spreads tightened from 650 basis points to 400 basis points. The total return for the asset class was 15.0%, making it the best performing fixed income asset class in 2016. Out outlook for 2017 is more conservative, especially since we are so late in the credit cycle already.
Economies are doing reasonably fine, not spectacularly well. Although we have no indication that economies are getting worse, the outlook is still a bit gloomy, with risks arising mostly from the political arena.
For our third chart extraordinaire in a series of three, strategist Peter van der Welle picked this one entitled ‘Mind the Gap: Inflation is back’. This shows how the gap between the global bond index (blue line) and developed market inflation surprises (orange line) has widened after levels of reported inflation have progressively exceeded expectations in recent months.
Trump’s election will lengthen the business cycle, overheat the US economy and might trigger more Fed rate hikes. Corporate credit quality keeps deteriorating. Still, we need a bigger shock than Trump to derail global credit markets. The Fed might do it in the medium term. We remain positioned close to a neutral beta while trading the ranges in the short term.
Central banks are doing everything they can to keep the global economy going. Now that their traditional measures are exhausted, governments may well consider going to the next level and hand out ‘helicopter money’ as a last remedy.
Boosted by falling bond yields and rising equity markets, multi-asset products have enjoyed increasing popularity over the past few years. But the prospect of rising interest rates and the possible end of the bull market in equities raise doubts as to whether they can keep on delivering high and stable returns. Our new Conservative Multi-Asset strategy intends to address this concern.
The recent rise in yields has boosted the performance of financial credits, the subordinated segment in particular. The insurance sector in particular can act as a great hedge for further rising yields, if and when this occurs.
Long-term interest rates are on the rise so credit investors need to assess whether they want to hedge interest rate risk. Here we reveal how this risk can be managed efficiently with a zero-duration share class.
Bond yields have declined to unprecedentedly low levels over the last three decades, resulting in stellar returns but also creating a more challenging outlook for the future. As a result, clients regularly ask whether our Robeco Lux-o-rente strategy will also be successful in a rising yield environment. An extended backtest that encompasses several decades of rising yields, notably in the 1970s, suggests this should be the case.
President Trump will have to deal with many well-known acronyms when he takes office, including NAFTA and NATO. But here's a new one that is rather more difficult to pronounce, and which will worry markets rather more: WSDKWTWD.
The idea of a global ‘debt supercycle’ is not as scary as it sounds, but three things do threaten stability if borrowing spirals out of control, Robeco’s experts advised asset owners at a recent webinar.
There is a lot of talk about renewable electricity becoming cost-competitive with conventional fossil fuel energy. That is good news for anyone who cares about global warming. However, energy experts point out real and substantial hurdles that still need to be taken.
One of the biggest challenges facing fixed income investors today is how to achieve attractive returns in a dysfunctional market environment. In such a climate, global, unconstrained credit strategies can prove their worth, as they have the freedom to pursue opportunities throughout global credit markets, without being limited by traditional benchmarks.
The low growth, low inflation state of the global economy is a favorable macro environment for fixed income investments. In such a world the Fed is not likely to normalize official target rates aggressively. Meanwhile the Bank of Japan comes up with another novelty from its seemingly inexhaustible toolbox: yield curve control.
Fundamentals have deteriorated and credit valuations are not very appealing either. But that does not matter anymore. There is only one trade and that is the Central Bank. Although we would rather be underweight risk, this very strong technical support keeps us neutrally positioned.
Value investing has been researched extensively in equity markets and has recently been shown to exist in credit markets as well. In our fundamental Global Credits strategy, the Value factor also plays an important role. Here we look for cheap stocks with strong mean reversion potential.
Durations of fixed income indices are moving up rapidly. This is mainly caused by governments and companies locking in cheap financing costs by issuing longer dated bonds. If bond yields were to rise, this could have serious consequences for index-focused or passive investors. In the current low-yield environment we advocate active and flexible duration management.
After years of widespread improvements, the ESG scores of euro area countries have started to show a more mixed picture. This can be concluded from the latest update of the RobecoSAM Country Sustainability Ranking. The information obtained from the ranking is used in investment decisions for the Euro Government Bonds fund.
The Robeco Global Diversified Carry fund was launched in August 2015 to take advantage of a quantitative investment strategy that searches for yield opportunities in different asset classes. In its first year it has delivered a strong return of 7.35%, resulting in a Sharpe ratio of 1.27. In this question and answer session, portfolio managers Klaas Smits and Shengsheng Zhang from Robeco’s Investment Solutions team explain how the fund works, and outline the reasons behind its success.
The ECB’s corporate sector purchase program has given investment grade corporate bonds a huge boost. Moreover, growth in ‘corporate hybrids’ and ‘reverse Yankees’ offers attractive yield pick-up opportunities.
Recently a new factor was added to the literature: Quality. In credits, we see Quality as a natural extension of pure Low-Risk. All our credit factor models have used Quality since inception, and have expanded its use over the years.
Over the past month, Robeco Investment Solutions has made a number of minor changes to its multi-asset portfolio. On balance, we remain underweight equities, as we see numerous risks which have been mostly ignored by stock markets, due to the natural upward drift during low volatility trading periods.
For many telecom companies, expanding into emerging countries can be very attractive. However, the telecom sector is highly exposed to country governance risk, such as changing regulations and bribery. For credits issued by telecom companies we assess this risk in a structured way to make better-informed investment decisions.
Should absolute return funds always make a profit? Most investors buy absolute return products to realize positive returns, and to use them for diversification purposes. However, many often forget that these ambitions are realized over a business cycle, and drawdowns can happen just like in any other investment.
“Putting your research to the test is always exciting, and if it then works out well, then that’s very satisfying.” That’s how Patrick Houweling describes celebrating the first anniversary of the Global Multi-Factor Credits fund, with an outperformance chart to go with the birthday cake.
American companies are levering up and central banks are providing ever cheaper money. With increasing debt, markets are becoming more vulnerable to volatility. We pursue a guerrilla strategy, adopting a neutral starting point and taking tactical positions where value pops up due to excessive fear. We start with a higher beta driven by the Brexit spread premium.
Robeco Global Total Return Bond Fund, Robeco Euro Government Bonds and Robeco All Strategy Euro Bonds are positioned for a flattening of the long end of the German curve. The rules of its own Quantitative Easing program are forcing the ECB to buy long-end government bonds only, which will cause the yield curve to flatten.
Markets reacted strongly following the UK’s surprising vote to leave the EU. Yields of developed market government bonds came down significantly as investors fled into safe asset classes. Risky assets were under pressure. Credit spreads widened and the British pound experienced its biggest drop in 30 years versus the dollar.
This study examines whether over thirty accounting-based fundamental variables known to be related to future stock returns are also effective for predicting future bond returns. The frequency of significant returns to trading strategies based on these anomalies turns out to be similar for the bond and stock markets.
Actively managing a portfolio’s sensitivity to interest rate movements is crucial for the returns on fixed income portfolios, as they are predominantly driven by changes in government bond yields. To forecast yield changes, Robeco developed a quantitative model in the 1990s, which has proven to have very good predictive power.
On June 23, 2016, the British will vote whether or not they want to remain a member of the European Union. In this article, three investors – Lukas Daalder, Mark Glazener and Kommer van Trigt - give their take on the consequences of a potential Brexit for, respectively, the main asset classes, global equities, and global bonds.
Research shows that factor investing strategies work well in corporate bonds, but actually building a portfolio requires greater care due to liquidity issues, Robeco’s quantitative experts argue in a new white paper.
Having been cautious on the asset class for years, we are becoming more constructive on local emerging debt because of its attractive valuations, the first signs of inflows back into the asset class and a recent improvement in fundamentals.
The current volatile markets provide plenty of food for thought for investors. To make better-informed investment decisions, Robeco has further developed its Dynamic Strategic Asset Allocation and Stress Test tools. "These analyses help a professional investor to make his portfolio more robust to cope with different economic regimes.”
Investors in high yield bonds should be careful that they do not get carried away by the unpredictable sentiment on financial markets. Sander Bus, Robeco High Yield Bonds portfolio manager, puts this investment category into perspective and looks ahead. "There certainly are investment opportunities among high yield corporate bonds, but it remains important to be selective."
In the volatile high yield bond market Robeco High Yield Bonds’ investment process has to prove its strength. Morningstar is convinced it can. “Because of its stable and experienced management team, solid track record and low costs, this fund deserves Morningstar’s Silver rating.”
The US presidential election race has turned in Hillary Clinton’s favor after she and her Republican rival Donald Trump won big victories in the ‘Super Tuesday’ primaries, says Chief Economist Léon Cornelissen.
Fears that the credit markets will be adversely affected much further by a Brexit are overblown, or at least have been priced in to a certain extent, as fundamentals are unchanged, says portfolio manager Victor Verberk.
If you believe in the January effect – the predictive power of the returns of the first month for the rest of the year – it is clear that 2016 is not going to be a very pleasant experience for a substantial part of the financial markets.
Investors are still operating in a difficult, volatile market. Investment strategists Han Dieperink (Rabobank), Nathan Levy (ING) en Pim Lausberg (ABN Amro) agree on this, but they also each add their own interesting nuances to the outlook for financial markets and investing.
The annual predictions season officially kicked off the moment we tore the last page off our 2015 calendar. Anything from simply making future projections based on existing movements and trends to coming up with top-of-your-head ideas for ‘black swans’ – unexpected events that could have a major impact.
Credit growth in China and Quantitative Easing (QE) in the US, Europe and Japan were medicines that worked for a while. Cheap money kept zombie businesses afloat and prevented creative destruction. However, the commodity cycle has rolled over and the credit cycle is proceeding. Funding pressure is increasing, the US credit market is full of animal spirits and volatility is back.
We provide empirical evidence that the Size, Low-Risk, Value and Momentum factors have significant risk-adjusted returns in the corporate bond market. By combining these factors in a multi-factor portfolio, drawdowns and tracking error vs. the market are reduced, while the higher return and Sharpe ratio are preserved.
Is the Fed about to make a policy error by raising rates too soon? The whole of this year financial markets are obsessed with the question whether the Fed will start normalizing short-term rates. Fed policy makers have fueled the discussion themselves by speaking out intentions to do so.
Charles Groenhuijsen interviewed Léon Cornelissen and Lukas Daalder on the main themes and issues of Robeco’s ‘Expected Returns 2016-2020’. Both are fairly optimistic about the world economy through to 2020. The re-emergence of inflation and rising rates will eat into sovereign bond returns, so both Cornelissen and Daalder prefer equities. They remain more bullish than bearish as the world continues to recover.
Changing technology presents a double-edged sword for the world economy. Disruptive start-ups will probably remain important, particularly if new products are deflationary or challenge established players.
In its outlook for the third quarter of this year, Robeco’s Global Fixed Income Macro team shares its views on Treasuries, credits and emerging debt and explains its positions in Rorento Global Total Return Bond Fund.
In the recent-sell-off on global government bond markets, Robeco Lux-o-rente managed to maintain a positive year-to-date return with its active duration positioning. This illustrates the importance of an active investment approach.
Interest in factor investing – investing in systematic sources of return – is rapidly increasing. Up to now most investor interest in this area has been focused on equities. But what are the possibilities for applying it to credits?
Although most factor research focuses on the equity market, the concept and benefits of factor investing apply equally well to the corporate bond market. A smart way of investing is combining the factors into a multi-factor credit portfolio in order to diversify across factors.
How should pension funds deal with the risk of rising interest rates on the capital markets? Is it sensible to hedge interest rates or should we focus more on inflation risks? Three experts highlight the interest rate related issues for pension funds in the light of the new Financial Assessment Framework.
Institutional investors are becoming increasingly aware of the fact that trends such as population growth, the scarcity of raw materials and globalization have an impact on a company's risks and opportunities. Under the pressure of regulators and investors, such as participants in pension funds, sustainable investing is slowly but surely evolving from a 'niche' to a general trend.
Investing in ETFs can be very risky, especially during periods of limited liquidity. Patrick Houweling and Victor Verberk explain why and how active management and the use of derivatives can provide both a solution and an investment opportunity.
Robeco’s quantitative duration model drives the performance of quant duration solutions such as Robeco Lux-o-rente and Robeco Flex-o-rente. We monitor the performance of the model and regularly investigate in which circumstances the model performs well and which conditions are more challenging.
Europe currently offers a better investing environment for corporate bonds compared with the US as companies are more conservatively managed on this side of the Atlantic, according to fund manager Sander Bus.
With its quantitative easing programs, the Fed has distorted bond markets, especially by reducing volatility. This has negatively affected the performance of the duration model.
Ground-breaking research by Robeco that changed the way the riskiness of corporate bonds can be evaluated has celebrated its 10th anniversary. This riskiness needs to be carefully calculated as bonds issued by companies have a greater chance of defaulting than government bonds. Their returns can also be more volatile, as they are linked to the underlying performance of the company that issues the bond.
Insurers need to have higher capital buffers against risk if Solvency II comes into place, forcing many to rethink the investments they are in. A potential solution lies in credits with a lower risk profile – as the clock starts ticking for investors to act.
How can corporate-bond investors protect themselves against a possible rise in long-term interest rates?
Residual Equity Momentum for Corporate Bonds