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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.
Robeco Enhanced Indexing invests in global developed markets equities, and has a low tracking error against its benchmark, the MSCI World index. In recent years, performance has been strong. In this article we focus on one element that distinguishes Robeco’s strategy from those of others: our short-term stock selection model (SHOT).
While ESG integration seems high on the agenda of many asset owners, implementation remains a challenge when selecting and monitoring external managers. Cécile Churet, Sustainability Investing Client Specialist at RobecoSAM, researched the industry trends and concluded that there is still a long way to go.
The market practice of ‘segmentation’ – where investors allocate money to specific asset class segments such as investment grade or high yield bonds – has been commonplace over the years. But this sort of ‘silo-thinking’ remains an inflexible approach.
Low-volatility stocks are known to lag in rising markets and lose less in falling markets. On average this is true, but is it always the case? Examining the historical evidence we find that unlikely scenarios – both positive and negative - do occur once in a while. Low-volatility investors should therefore not only focus on averages, but consider a broader range of possible outcomes.
The application of Gordon’s growth formula to a ‘Japan scenario’, low bond yields in combination with low expected growth and low inflation, supports the case for low volatility stocks. This simple formula (left side) states that the value of a stock is equal to the present value of the expected stream of dividends.
Factor investing is the talk of the town. But how does it fit into the debate of active versus passive? We interviewed two experts with different perspectives: one working for an index provider while the other represents an active management house.
What are the challenges of smart beta and factor investing? Factor strategies will have a profound impact on the way portfolios are constructed, says James Price, Investment Consultant at Towers Watson.
What's hot and what's not for the next five years? Our portfolio managers, economists and strategists favor equities over bonds, due to the prospect of higher interest rates, but warn that returns are likely to be lower than during the previous 2014-2018 period.
Generic strategies designed to harvest a certain factor premium regularly conflict with other factor premiums. We find that the premiums associated with these strategies tend to shrink, sometimes even to zero, in these periods of factor disagreement. But enhanced factor strategies avoid stocks that are unattractive on other established factors and continue to deliver when generic factor strategies struggle.
More and more investors recognize the importance of ESG integration. However, many parties tend to focus on screening and exclusion. While lots of ESG efforts are being made, the connection to business models and valuation tends to be missing. In this article we discuss how the Robeco Global Equity team tackles the challenge of linking ESG to value drivers.
Factor Investing is increasingly in the spotlight. Financial magazines run features on it, seminars are organized on the subject, and investors consider adopting its approach. Yet you might wonder: is it just a hype?
How can factors be useful to implement de-risking programs of pension plans? Alex Neve, Director of equities at Univest talks about the lessons learned. Univest is the investment advisor of all Unilever pension plans.
Factor investing is becoming more popular. Professional investors are increasingly considering investing strategically in certain parts of the financial market which realize better risk-adjusted returns over longer periods. The question is: “How can investors best implement this strategy?”
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.
Low-volatility investing is becoming more popular. Many professional investors currently explicitly allocate a significant portion of their portfolio to low-volatility stocks. Robeco uses an enhanced approach to increase returns and reduce risk.
Value is one of the oldest factors in the world. Graham and Dodd already laid the intellectual foundation in the 1930s for what would later be called value investing and Basu published the first academic study in 1977 documenting the existence of the value premium.
Robeco’s assets under management in Quant Equities recently surpassed the EUR 20bn milestone. On this occasion, we asked Peter Ferket, CIO Equity Rotterdam and closely involved in Robeco Quant Equity since the late 1990s, how he explains the success of quant equity investing and Robeco’s role as a thought leader in this field.
The company Inditex* may not be a well-known name outside Spain, but its flagship brand Zara certainly is. It is famous for selling fashionable clothing. So what are the secrets behind its success and why does Robeco Global Consumer Trends Equities invest in it? Interview with Portfolio Manager Jack Neele.
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.
Can you have a pioneering spirit and yet still exercise caution? At Robeco we have the strong belief that it is possible to be both pioneering and cautious by applying thorough research and past experience: you need to know what you are doing.
There is a shift towards allocating to the factor premiums momentum, value and low volatility. However, since common factor indexes are a suboptimal way to harvest factor premiums, this paper shows the improved results of a more sophisticated approach. Factor strategies developed by Robeco lead to higher returns, while lowering the risks, resulting in higher Sharpe ratios.
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.
Korea is a country of hard workers and heavy drinkers. According to the Organisation for Economic Cooperation and Development (OECD), people there work 50% longer hours, and according to the World Health Organization (WHO), 25% more alcohol is consumed there per adult than in the Netherlands. Indeed, there's an interdependency there: no sooner is their long office day over, Koreans start overindulging in the traditional soju (rice wine) over dinner with clients and colleagues, and later drink excessive amounts of whiskey and cognac at a night club.
More and more people across the world are adopting an unhealthy lifestyle that could lead to health problems as they get older. Excessive consumption of certain foods and drinks is a big part of this problem, so food and beverage makers are under increasing pressure to respond to this issue. Those that fail to respond, run the risk of suffering falling revenues: Changes in the regulatory and taxation systems, lawsuits, and consumer pressure are all driving the need for companies to change. Those that respond to this issue effectively will maximize their chances of achieving a sustainable, reputable operating model over the longer term.
Choices relating to asset allocation have major effect on the risk/return characteristics of investment portfolios. New academic insights have led to important innovations in this area. One of these is implementing a market view in a risk-parity portfolio.
Low-volatility stocks are in high demand. According to Pim van Vliet, portfolio manager of Conservative Equities, a generic low-volatility strategy is getting more expensive. An enhanced approach is necessary to prevent buying too expensive stocks.
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.
The ESG ranking of a number of euro periphery countries has improved, after having reached a low in 2010. These changes give information on developments in a country’s investment risk. We use this information to identify trends in, for instance, the political climate that are relevant for our investment decisions.
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The development of new cures for severe diseases and the aging of the population have blown up healthcare costs. Fortunately, new tools and technologies promise to enhance productivity and improve healthcare quality.
The future earning capacity of the workforce varies according to the profession and the individual. In the case of both collective DC schemes and individual life-cycle investment plans, this impacts the investment mix.
In 1999, fifteen years ago, Robeco found that quantitative stock selection techniques known to be effective in developed markets are also able to deliver superior investment results in emerging markets. What are the biggest takeaways from the research done and how does the model work in practice?
Today Robeco proudly launched two new credit funds: Robeco Global Credits and Robeco Emerging Credits. Both funds will apply a total return strategy giving greater flexibility to invest into other asset classes. This will give a diversified exposure to the global credit markets.
Investors increasingly embrace “smart beta” investing, by which we mean passively following an index in which stock weights are not proportional to their market capitalizations, but based on some alternative weighting scheme. Examples include fundamentally-weighted indices and minimum-volatility indices. In this whitepaper we first take a critical look at the pros and cons of smart beta investing in general. After this we successively discuss the most popular types of smart indices that have been introduced in recent years.
Passive investing has become increasingly popular. Despite its undeniable appeal, there are also some considerations which should make investors think again about the desirability of a passive approach.
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.
Water is a precious, yet finite resource essential for life, with no adequate substitute. Supplying and allocating water of adequate quality and in sufficient quantity is one of the major challenges facing society today. Watch the video.
Research by Robeco and academic researchers shows that a low-risk anomaly exists in credit markets: low-risk credit portfolios earn higher risk-adjusted returns than high-risk portfolios over a full market cycle.
You would not be pleased if you thought you had the right exposures to factors that drive expected returns, but it turns out you actually have precisely the opposite tilts. This is happening quite often though. Quantitative researcher Joop Huij and head of equity research David Blitz argue that institutional investors should be careful when assessing asset managers.
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.
Interest in factor investing - investing in systematic sources of return - is rapidly increasing. But how are pension funds incorporating factor investing into their portfolios and investment processes?
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.