Credit markets are prone to behavioral biases, causing inefficiencies and a tendency to overshoot either on the upside or the downside. Many participants are not only driven by traditional risk-return considerations but also by market segmentation, herd behavior and regulatory constraints. We believe that we can identify and capture these inefficiencies in valuation, risk and reward by combining in-depth fundamental research with a contrarian investment style and strict risk control.
Our credit strategies capture market inefficiencies through the use of two low-correlated performance drivers:
An essential element for adding value to a credit portfolio is to determine what level of risk to run at any given moment in the market cycle. We assess the expected credit environment on a quarterly basis and change the portfolio’s credit beta accordingly. As a result, the portfolio is positioned to benefit from or weather against the anticipated stage of the market cycle.
Credit issuer selection
We use fundamental analysis to target mispriced bonds and instruments. Research is concentrated on the issuer’s business position, corporate strategy, ESG profile, corporate structure and financial profile. The focus of all sustainability analysis is on downside risk, on absolute impact and on financially material issues.
Accurately measuring credit risk is a significant challenge for credit investors. We have developed an innovative method that provides insight into the nature and extent of risk in credit portfolios. Based on the duration time spread (DTS) of each bond, portfolio managers can implement their views more effectively. DTS was originally co-developed by Robeco researchers in 2003. The results were published in The Journal of Portfolio Management in 20071. DTS is now widely accepted and market standard among investors, and has been implemented in leading risk management software, including MSCI RiskMetrics and Bloomberg PORT.
1“Duration Times Spread: A new measure of spread exposure in credit portfolios”, The Journal of Portfolio Management, 2007, vol. 33. no. 2, pp. 77-100
This strategy is managed by the Credit team, consisting of around 10 portfolio managers and more than 25 credit analysts with a clear split in responsibilities. The portfolio managers are primarily responsible for the portfolio construction. Analysts are focused on creating the deepest possible issuer research and are clustered around sector specializations, covering issuers across the rating spectrum from investment grade to high yield and emerging markets. This allows them to identify and exploit crossover opportunities including fallen angels and rising stars. Analysts have the same remuneration package as portfolio managers.
This strategy promotes, among other characteristics, environmental and/or social characteristics, which can include exclusionary screening, ESG integration, ESG risk monitoring and active ownership. It is classified as Article 8 under the EU Sustainable Finance Disclosure Regulation (SFDR).
We also offer a range of SDG credit portfolios with sustainable investment as their objective and a Paris-aligned Climate Global Credit solution; all classified as SFDR Article 9.
Our analysis of issuers goes beyond the traditional financial factors and includes the issuers’ performance on ESG factors. It is 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 past credit events can be attributed to issues such as poorly designed governance frameworks, environmental issues or weak health and safety standards. The aim of ESG integration is to improve the risk-return profile of the investments; it does not have an impact goal. ESG analysis is fully integrated in the bottom-up issuer analysis. We have defined key ESG factors per industry, and for every company we analyze how the firm is exposed to these key ESG factors, and how this impacts the fundamental credit quality.
Unmoved by market sentiment and herd behavior, and instead making decisions based on research, conviction and long-term focus
Preference for higher credit quality of corporate debt issuers
A true understanding of the topic has been in our DNA since the start
Team has long-term experience and low turnover