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As sector developments are global, Robeco’s credit analysts have a sector responsibility irrespective of grade or country of origin. This is a unique approach, which allows us to capitalize on the inefficiencies resulting from current market segmentations.
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.
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.
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.
Debt gets a bad rap, creating images of human figures bound in chains… but is it really that bad? It is a lot more complex than that, says asset allocator and debt investor Lukas Daalder in his analysis of the thorny subject for Robeco’s new five-year outlook.
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.
High-quality European issuers in the high-yield market opened 2 points down this morning after UK’s vote on Brexit. This price reaction is not severe, especially if you relate this to the fierce moves seen in equity markets. We considered the order of magnitude fair, given the strong support by the corporate buying program of the ECB and healthy balance sheet of European BB credits.
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.”
“Things aren‘t going well, but apart from that everything’s fine.” According to Robeco board member Hester Borrie, this quote – from Gerard Reve’s book The Evenings – perfectly encapsulates chief economist Léon Cornelissen’s view on the situation in the global economy.
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.
One of the cornerstones of the investment philosophy of Robeco’s Credit team is that avoiding losers is more important than picking every winner. The team believes that integrating environmental, social and corporate governance (ESG) factors into its analysis strengthens the ability to assess the downside risk of its credit investments. The Credit team is therefore convinced that ESG and credit analysis are a perfect fit.
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 introduced Robeco Quant High Yield Fund on March 28, 2014. By investing in credit default swap (CDS) indices, this fund offers liquid exposure to global high yield, allowing investors to tactically trade in and out of this asset category at low costs. Performance is driven by a proprietary quantitative market-timing model with a solid track record of over ten years.
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.
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.
Corporate bond returns consist of two distinct components: an interest rate component, which is default-free and anti-cyclical, and a credit spread component, which is default-risky and pro-cyclical.
Generating benchmark-like returns is a difficult job in the High Yield corporate bond market. High index turnover and illiquidity, i.e. high bid-ask spreads, are the main reasons why passively tracking a High Yield index comes at significant costs.