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Markets reacted positively to the election of Donald Trump, who took office last week. However, some investors may now realize they got ahead of themselves and brace for a rougher ride. Low-volatility stocks usually perform well in tougher markets, so our US Conservative Equities strategy might be an attractive option.
The name Robeco Lux-o-rente will be changed to Robeco QI Global Dynamic Duration. Not only does the new name more accurately describe the investment philosophy of the fund, it also allows investors to more easily infer the nature of the investment strategy. Portfolio manager Olaf Penninga on active duration management.
Trump's win has caused plenty of commotion on financial markets over the last two months. Expectations of lower taxes have given US stocks wings, while capital-market rates have risen fast. Is that all down to The Donald?
The variability of fixed income investment returns remains high and this is not likely to change this year. Today’s winners can be tomorrow’s losers and vice versa. An investment approach that has a global universe, is flexible and operates independently from tradional fixed income indices, is best suited to exploit these differences.
The global real estate sector has been in a prolonged upward cycle. We expect occupancies and rents to continue rising, especially in the prime segment, while supply should remain healthy. This bodes well for 2017, although we do recognize that many markets, especially in the office segment, are in a late stage of the cycle.
Since the election of Trump as the next US president, investors are starting to notice the financial sector’s low valuations and are allocating more money to it. Combining this with the fact that some segments of the financial sector are more resilient to (or even benefiting from) higher interest rates, we expect the sector to continue its strong performance in 2017.
To get the best estimate of how a company is doing, our Global Equity analysts look at free cash flow rather than earnings. Earnings can be ‘managed’ in the balance sheet, cash is what it is. We are therefore convinced that free cash flow yield is an effective discriminating factor to identify the most promising stocks.
Robeco interviewed Pippa Malmgren, former advisor of US presidents Ronald Reagan and George W. Bush. In Part II she discusses the return of inflation, the wave of technological innovation, and the catalysts for economic growth.
Investment experts Bob Homan (ING), Han Dieperink (Rabobank) and Gerben Jorritsma (ABN Amro) are in agreement that equities will be the most lucrative asset class for investors in 2017. But they all also have individual views on which other areas they favor, varying from high yield bonds and commodities to real estate.
Robeco interviewed Pippa Malmgren, former advisor of US presidents Ronald Reagan and George W. Bush. In Part I she discusses geopolitical tensions, the immigration issue and the rise of the individual against the establishment.
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.
Thorough analysis of hedge fund data shows that, despite their flexible approach to investing, these funds tend to bet strongly against the low-volatility anomaly. This suggests that limits to arbitrage are not the main reason for this anomaly and that the low-volatility trade is still far from being overcrowded.
Following accusations of an environmental UN Global Compact breach, we actively engaged with China Resources & Power (CRP). The company convincingly refuted the allegations and demonstrated great openness to its stakeholders.
Theory is being put into practice with blockchain. Jeroen van Oerle, trend analyst for Robeco New World Financial Equities, sees more and more applications for this promising technology in the financial sector. “Banks are leading the way and are in the implementation phase. Insurers are following suit and are moving from the concept to the test phase. Asset managers must be careful not to miss the boat."
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.
This paper* compares classic and new smart-beta indices that are designed to capture the value premium. Classic value indices segment the market into value and growth stocks, and then apply capitalization weighting to the value segment of the market.
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.
For our second chart extraordinaire in a series of three, senior portfolio manager Jeroen Blokland picked this one entitled ‘Bond Madness!’ This shows how Swiss 50-year bond yields went negative in 2016 due to massive central bank bond-buying programs, which puts the price up and the yield down. A negative yield means the investor actually pays the government for the privilege of lending them money, a scenario is unprecedented in history and unsustainable on any logical level.
It has been an eventful ten years for emerging markets. Marked by the rise of China, political turmoil, seesawing commodity prices, but also growth and positive market returns, according to Jaap van der Hart, portfolio manager of Robeco Emerging Stars Equities.
Whereas Asia used to be a laggard in sustainability investing, the region is catching up quickly. New stewardship codes are being introduced at a rapid pace. Robeco endorses the Japanese, Taiwan and Hong Kong stewardship codes.
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.
For our first chart extraordinaire in a series of three, Lukas Daalder, Chief Investment Officer of Robeco Investment Solutions, picked this one from the Economist magazine, entitled ‘No boom without a bust’. This beautifully (and also somewhat terrifyingly) illustrates the enormity of the level of privately held Chinese debt outside the financial sector.
Though the Italian government bond market has just calmed down since last month’s referendum, a new referendum is already looming. This poll aims to repeal Renzi’s labor market reform. Early elections are also becoming increasingly likely. In light of these events Robeco’s Global Fixed Income Macro Team has implemented a negative stance regarding Italian government bonds.
Artificial intelligence (AI) is a broad concept which has been around since the 1950s. Some, like Ray Kurzweil, foresee a limitless positive future. Others, like Stephen Hawking, predict general AI to be humanity’s last invention. As investors, we see opportunities in the ‘narrow’ form of AI.
Robeco has been engaging with companies since 2005. While, as investors, we see the use of engagement, we didn’t know how companies perceive this. Earlier this year, VDBO (the Dutch investors association for sustainable development), Robeco and University of Amsterdam researched this topic, interviewing a number of companies on how they use engagement.
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.
Robeco NV is to adopt a more distinctive character. The number of stocks in portfolio will be reduced to around 40 names allowing the fund to deviate more from the MSCI World Index. The Netherlands oldest investment fund is making itself future-proof. Fund managers Mark Glazener and Jan Keuppens explain the changes in the fund's investment strategy.
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.
This AQR working paper argues that the size effect does, in fact, exist. The crucial element of their approach is to control for exposure to other factors when estimating the size premium, in particular regarding high quality versus low quality (junk) stocks.
Robeco has been incorporating sustainability in the analysis of emerging markets companies for over 15 years. What started as a corporate governance survey in 2001 evolved into an Environmental, Social, and Governance (ESG) survey in 2014. In this year’s survey, South Africa continues to be in the lead, while India and Mexico are the biggest risers.
This Research Affiliates research note argues that the size premium does not exist. They acknowledge that long-term US data suggests a size premium of 3.4%, while global data suggests a size premium of 1% since the effect was first documented in the early 1980s.
Robeco has introduced a new version of the Enhanced Indexing fund for developed markets, which has been tax-optimized for Dutch retail investors. Enhanced Indexing, which has an excellent 12-year track record of over 1% outperformance per year at a tracking error of around 1%, offers a credible alternative to passive investing.
Quant investing is becoming more widely accepted. But such developments are always accompanied by growing pains. We talked to Pim van Vliet, head of Conservative Equities, about the opportunities and pitfalls and why culture and philosophy are so important.
Nobel prize laureate Eugene Fama (pictured) and fellow researcher Kenneth French have revamped their famous 3-factor model by adding two new factors to analyze stock returns: Profitability and Investment. But this 5-factor model raises many questions.
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.
Robeco has long been a pioneer in quantitative investing, having exploited the Value and Momentum effects since the early 1990s and Low Volatility since 2006. But we’re constantly looking for new factors to exploit. In 2013 we instigated a large-scale study that confirmed the existence of a fourth factor – Quality. Simon Lansdorp from our Factor Investing Research team explains the Quality effect and how we are now exploiting it.
Download the second edition of Robeco Quarterly, our 40-page magazine for professional investors, focusing on quant investing, sustainability investing and research. Also in this edition: a long-read on liquid alternatives, a summary of Robeco’s 2017 outlook and an interview with Mark Glazener on the risks of aggressive tax policies.
Throughout his career, Noël Amenc has championed the incorporation of academic research into the decision-making of finance professionals and regulators. Having set up the Edhec Risk Institute in 2001, today he is chief executive of ERI Scientific Beta, the institute’s initiative to put its research on smart beta into practice. We spoke to him to find out his views on the state of the smart beta industry today and what the future may bring.
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