Robeco Financial Institutions Bonds M2H USD

The most important news during the month came from the central banks. As expected, the ECB announced a new round of Quantitative Easing, in combination with a rate cut of 10 basis points. The biggest surprise in the announcement was the fact that bond buying will start without an end date. This means that it may take years before the ECB will stop buying and that it may take years before we will see positive short-term rates in Europe again. Banks will be supported by deposit-tiering, which means that the new -0.50% deposit rate will only apply to part of their deposits at the central bank. Also the terms of the new long-term financing facility for the banks (LTRO) will be more attractive than before. In the US, the Federal Reserve cut interest rates by 0.25%, with the Fed reluctant to cut further. It seems that the Fed will only become more aggressive in cutting interest rates if the labor markets show a more significant deterioration. Weaker economic data did not have much impact on investor appetite for new bond issues. We bought new AT1 CoCos like those of Nationwide and Barclays, but also green Tier 2 bonds issued by Generali.

All currency risks are hedged.

Robeco Financial Institutions Bonds fund make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid.

This share class of the fund does not distribute dividend.

Our analysis of issuers goes beyond the traditional financial factors and includes the issuers’ performance on ESG factors. We deem it essential for a well-informed investment decision to take into account those ESG factors that have the potential to materially impact the financial performance of the issuer. This perfectly matches the basic need to avoid the losers in credit management, as many credit events in the past can be attributed to issues such as poorly designed governance frameworks, environmental issues, or weak health & safety standards. The aim of ESG integration is to improve the risk/return profile of the investments and does not have an impact goal. ESG analysis is fully integrated in the bottom-up security analysis. We have defined key ESG factors per industry, and for every company we analyze how the firm is positioned versus these key ESG factors, and how this impacts the fundamental credit quality.

Robeco Financial Institutions Bonds mainly invests in subordinated euro-denominated bonds issued by financial institutions. The fund offers a diversified exposure across 50-60 issuers, including the new style hybrid bonds that are being issued on the back of Basel III regulation. Focus of the fund are higher rated bonds (investment grade) with a tilt to Tier 2 bonds. The fund aims to outperform its index Barclays Euro-Aggregate: Corporates Financials Subordinated 2% Issuer Cap. The index applies an issuer cap to avoid concentration risk. The investment philosophy is based on managing a solid diversified portfolio with a long term view. Top-down beta positioning is based on the outcome of our credit quarterly outlook meeting, in which the team is discussing the fundamental market outlook, valuation of bond markets and market technicals. Bottom-up issuer research is executed by our credit analysts, who execute the fundamental analysis. The portfolio managers are responsible for the portfolio construction. A proprietary developed risk management approach avoids high risk concentration in the portfolio. As the investment process is well-structured and proven over time, it contributes to repeatable performance delivery. Duration of the portfolio is managed in line with the index and currency exposure is hedged.

Risk management is fully embedded in the investment process to ensure that positions always meet predefined guidelines.