Robeco logo

Disclaimer

BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.

What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity:

  • who holds an Australian Financial Services License

  • who has or controls at least $10 million (and may include funds held by an associate or under a trust that the person manages)

  • that is a body regulated by APRA other than a trustee of:
    (i) a superannuation fund;
    (ii) an approved deposit fund;
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme.
    within the meaning of the Superannuation Industry (Supervision) Act 1993

  • that is a body registered under the Financial Corporations Act 1974.

  • that is a trustee of:
    (i) a superannuation fund; or
    (ii) an approved deposit fund; or
    (iii) a pooled superannuation trust; or
    (iv) a public sector superannuation scheme
    within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million.

  • that is a listed entity or a related body corporate of a listed entity

  • that is an exempt public authority

  • that is a body corporate, or an unincorporated body, that:
    (i) carries on a business of investment in financial products, interests in land or other investments; and
    (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82 of the Corporations Act 2001, the terms of which provided for the funds subscribed to be invested for those purposes.

  • that is a foreign entity which, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.


I Disagree

Client Solutions case

Customizing a fixed income replication solution for a pension plan

Passive fixed income strategies, like corporate bond index funds, are popular for their low costs and simplicity, as they aim to replicate the performance of a conventional benchmark index. However, many sophisticated investors seek to incorporate specific investment or sustainability objectives into their portfolios that are not represented in a conventional benchmark, as well as avoiding some benchmark inefficiencies. This is how we built a bespoke solution for a pension plan.

Read the full paper


2148861850.jpg


Objectives

Objectives

  • Alignment with conventional benchmark returns: The solution should have a low tracking error versus the conventional benchmark, with similar return levels.

  • Low turnover to increase cost efficiency: This aimed to avoid active management costs and limit trading to fundamental credit risk, sustainability and tracking error considerations.

  • Avoiding high-risk names: All issuers in the portfolio were carefully selected based on in-depth fundamental analysis, aiming to add performance and avoid high-risk names.


The pension plan wanted to embed their specific sustainable investing objectives, with the tracking error budget mainly being used to meet these objectives:

  • At least 50% GSS bonds: Making a material allocation to green, social and sustainable (GSS) bonds, promoting a positive environmental and social impact

  • CTB-aligned carbon footprint: Ensuring that the portfolio’s carbon footprint aligns with the European corporate bond Climate Transition Benchmark (CTB), supporting a low-carbon economy

  • Client exclusion list: Excluding specific industries or companies that do not align with the client’s ethical and environmental values

  • Exclusion of negative SDG scores: Only including bonds that have positive scores in Robeco’s SDG Framework to align with global sustainability objectives

  • No climate laggards: Excluding companies with a high carbon footprint and do not score aligned or aligning with Robeco’s Climate Traffic Light Assessment


Solution

Solution

The solution was to create a specific Climate and SDG portfolio for the client tracking the conventional Euro Corporate Benchmark. How this works is shown in the table below:

Climate and SDG portfolio vs. benchmark

Climate and SDG portfolio vs. benchmark

Source: Robeco. Past performance is no guarantee of future results. For illustrative purposes only.

Outcomes

Outcomes

The portfolio achieved its objective, with a low tracking error of approximately 0.25%, while the portfolio’s management style aimed to ensure a significantly lower turnover than the benchmark. The portfolio also showed an improved fundamental score, where the scores range from -3 to +3. This scoring by our credit analysts gave an indication into the financial health and operational efficiency of the selected companies, compared to rating peers.

We also ensure that the portfolio is comparable in terms of credit quality and market liquidity to the conventional benchmark. Importantly, the portfolio still has a yield of approximately 10 bps above the conventional benchmark, while meeting the client’s specific investment and sustainability objectives. The SDGs can be used to further generate a targeted impact on specific investors’ sustainability objectives through alignment with a specific set of the UN SDGs.

Read the full paper


Robeco

Robeco aims to enable its clients to achieve their financial and sustainability goals by providing superior investment returns and solutions.

Important information: This website is prepared and issued in Australia by Robeco Hong Kong Limited (ARBN 156 512 659) (‘Robeco’) which is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) pursuant to ASIC Class Order 03/1103. Robeco is regulated by the Securities and Futures Commission under the laws of Hong Kong and those laws may differ from Australian laws. The information on this web page is provided to you because Robeco reasonably believes that you are a "wholesale client" within the meaning of that term under section 761G(4) of the Corporations Act 2001 (Cth) ("Corporations Act") and not any other class of persons. This information is not an advertisement and is not intended to induce retail clients to acquire Robeco products. Retail clients who are interested in Robeco products should contact their financial adviser.