Robeco Sustainable Emerging Credits D USD

Reinout Schapers is Co-Head Portfolio Management Investment Grade in the Credit team. Prior to joining Robeco in 2011, Reinout worked at Aegon Asset Management where he was a Head of European High Yield. Before that, he worked at Rabo Securities as an M&A Associate and at Credit Suisse First Boston as an Analyst Corporate Finance. Reinout has been active in the industry since 2003. He holds a Master's in Architecture from the Delft University of Technology. Christiaan Lever is Portfolio Manager High Yield and Emerging Credits in the Credit team. Before assuming this role in 2016, he was Financial Risk Manager at Robeco, focusing on market risk, counterparty risk and liquidity risk within fixed Income markets. Christiaan has been active in the industry since 2010. He holds a Master's in Quantitative Finance and in Econometrics from Erasmus University Rotterdam. The RobecoSAM Emerging SDG Credits fund is managed within Robeco's credit team, which consists of eight portfolio managers and twelve credit analysts (of which four cover the financial sector). The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team's fundamental research. Our analysts have long term experience in their respective sectors which they cover globally. Each analyst covers both investment grade and high yield, providing them an information advantage and benefiting from inefficiencies that traditionally exist between the two segmented markets. Furthermore, the credit team is supported by three dedicated quantitative researchers and four fixed income traders. On average, the members of the credit team have an experience in the asset management industry of sixteen years, of which eight years with Robeco.

The fund is established in Luxembourg and is subject to the Luxembourg tax laws and regulations. The fund is not liable to pay any corporation, income, dividend or capital gains tax in Luxembourg. The fund is subject to an annual subscription tax ('tax d'abonnement') in Luxembourg, which amounts to 0.05% of the net asset value of the fund. This tax is included in the net asset value of the fund. The fund can in principle use the Luxembourg treaty network to partially recover any withholding tax on its income.

The fiscal consequences of investing in this fund depend on the investor's personal situation. For private investors in the Netherlands real interest and dividend income or capital gains received on their investments are not relevant for tax purposes. Each year investors pay income tax on the value of their net assets as at 1 January if and inasmuch as such net assets exceed the investor’s tax-free allowance. Any amount invested in the fund forms part of the investor's net assets. Private investors who are resident outside the Netherlands will not be taxed in the Netherlands on their investments in the fund. However, such investors may be taxed in their country of residence on any income from an investment in this fund based on the applicable national fiscal laws. Other fiscal rules apply to legal entities or professional investors. We advise investors to consult their financial or tax adviser about the tax consequences of an investment in this fund in their specific circumstances before deciding to invest in the fund.

Sustainability is incorporated in the investment process by the means of a target universe, exclusions, ESG integration, and a minimum allocation to ESG-labeled bonds. The fund invests in credits issued by companies with a positive, neutral or low negative impact on the SDGs. The exposure to credits issued by companies with a low negative impact is at max 20% and the average SDG score of the fund must be greater than zero. The impact of issuers on the SDGs is determined by applying Robeco's internally developed three-step SDG Framework. The outcome is quantified with a proprietary SDG score methodology, considering both the contribution to the SDGs (positive, neutral or negative) and the extent of this contribution (high, medium or low). In addition, the fund does not invest in credit issuers that are in breach of international norms or where activities have been deemed detrimental to society following Robeco's exclusion policy. Financially material ESG factors are integrated in the bottom-up security analysis to assess the impact on the issuer's fundamental credit quality. Furthermore, the fund invests at least 5% in green, social, sustainable, and/or sustainability-linked bonds. Lastly, where a credit issuer is flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to exclusion.

After a tumultuous March, volatility came down, although markets failed to find a clear direction. Markets are increasingly worried about the looming recession, while inflation proves to be more sticky than anticipated in developed markets. In emerging countries in many cases inflation is less of an issue and local central banks may have room to start lowering rates ahead of developed markets. However, the JPM CEMBI universe failed to materially outperform developed indices. Latin American markets showed a weak performance during April. Political unrest and weaker commodity prices are likely the key drivers of this. Asian markets remained relatively strong. This was the only region where there was an active new issue market this month. Most of the issuance were well-know high grade names, but also new issuers such as Pertamina Geothermal were able to issue new bonds. The CEMBI spread declined 3 bps to 372 bps over the month, while the yield remains close to 7.5%.

Based on transaction prices, the fund's return was 0.86%. The total return of the index was 0.88% for the month. The fund outperformed its index by 9 basis points. This month's beta contribution added 4 basis points, as spreads moved tighter and we have a small beta overweight. Issuer selection had a positive impact on performance of 5 basis points. On an issuer level, we gained the most through Ecopetrol (UW), Adani Green (OW), Banco Santander (OW), GLP (UW) and K Bank (OW). The biggest detractors were PCCW (OW), Lima Metro (OW), Seagate (OW), Cable & Wireless (OW) and Colombia (OW).

What happened at Silicon Valley Bank and Credit Suisse? At the end of the hiking cycle (certainly after such a steep rise in central bank rates), there are casualties. There always are. We just do not always know which sector or region is the most vulnerable at that point in the business cycle. The recent banking stress will have changed one thing. Bank lending standards were already tightening and this process will now accelerate. Refinancing is the key element in a credit downturn and this is precisely what will be more difficult for some companies. Rates fears were the key driver in this cycle and 10-year yields historically seem to peak at that penultimate point. But it looks as though we are now back to fundamentals and we therefore have some confidence that it is time to slowly enter a buy-on-dips strategy. Spreads on all segments of the credit market are now undoubtedly above median spreads, although divergence is also visible here. Could spreads go wider in a full-blown recession scenario? Yes, they can. However, we do feel comfortable running a beta above 1, as there are clear pockets of value across markets. Active positioning will remain key throughout the volatility.