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Factor investing applied to credits

There is strong empirical evidence for the existence of low risk, value, momentum and size factor premiums in the corporate bond market.

Factor investing credits

Strategy

Robeco brings factor investing to credit markets, allowing investors to benefit from the factors that have been so successful in equity markets over the past years: low-risk, value, momentum and size.

Factor investing is a systematic investment approach using strictly defined metrics (‘factors’), which historically generated higher Sharpe ratios and higher returns than the traditional market index. The Robeco factor strategies are based on thorough empirical research conducted by our quantitative researchers. In 2014 Patrick Houweling and Jeroen van Zundert wrote an academic research paper entitled ‘Factor investing in the corporate bond market’. In this first academic study of its kind, Houweling and van Zundert show that factor strategies can also be attractive in credit markets.

Our factor investing strategies are driven by proprietary quantitative models that use enhanced factor definitions to improve the Sharpe ratio beyond the academic definitions. The investment process combines the outcomes of the quantitative model with a fundamental check by our tenured credit analysts of additional downside risks beyond those captured by the model.
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