Important legal information

The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.

The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.

Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is Robeco Switzerland AG, Josefstrasse 218, 8005 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/Robeco Switzerland product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/Robeco Switzerland offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.

This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.

I Disagree
Brexit impact on Robeco Financial Institutions Bonds

Brexit impact on Robeco Financial Institutions Bonds

24-06-2016 | Insight
  • Jan Willem de Moor
    Jan Willem
    de Moor
    Senior Portfolio Manager Credit

Speed read

  • Subordinated financials opened lower
  • UK bank exposure reduced
  • Yield of the portfolio increased 

Subordinated financials lower

The Robeco Financial Institutions Bonds fund invests mainly in subordinated financial. The market for subordinated financials opened lower this morning, in line with other risky assets like equity. Throughout the morning prices started to recover a bit and we have seen buyers in the market. Market weakness was well spread, though obviously UK names underperformed.

Stay informed on Credit investing with monthly mail updates
Stay informed on Credit investing with monthly mail updates
Subscribe

Impact different capital structures

Price declines in Banking Tier 2 bonds are on average between 1 and 2%, insurance debt is trading around 2% lower. The weakest performance can be found in Additional Tier 1 CoCo’s, where the average price drop was 4%. The fund only has a 13% allocation to CoCo’s. 

Beta positioning

The Robeco Financial Institutions Bonds fund has an overweight beta positioning, as we believe that spreads have tightening potential. Subordinated financials have lagged the performance of non-financials while the overall banking sector is in a structural deleveraging trend. We anticipated a Bremain outcome. The beta overweight is not helping the performance in today’s market. However we still feel comfortable with this positioning, as we think that there are structural reasons to be overweight. 

Political risks increased

We acknowledge that political risks have increased, not only in the UK but also in the rest of Europe. We believe that those risks are compensated by higher spreads. 

UK banks

The same can be said about our positioning in UK banks. The fund has an overweight in UK banks, though we have reduced the overweight slightly in the last week. Currently our allocation to UK banks is around 9%. UK bank debt is trading at a clear discount to European bank debt. Leaving the European Union might have a negative impact on economic growth in the UK. We think that UK banks are able to deal with this worsened economic outlook. We will make sure that all our UK positions offer an additional spread versus non-UK positions. 

Currency exposure

The biggest part of the fund (84%) is denominated in Euro. The exposure in Sterling is 3%, this exposure is hedged to the Euro. 

Yield increased

The yield of the portfolio has increased by today’s spread widening to a level of approximately 3.8%. This yield consists almost exclusively of credit spread, as underlying government bond yields are zero. We think that subordinated financials offer an attractive investment alternative in a world where more and more fixed income products are yielding (close to) 0%. 

Subjects related to this article are: