Robeco European High Yield Bonds DH USD

Roeland Moraal is Portfolio Manager High Yield in the Credit team. Before assuming this role, he was Portfolio Manager in the Robeco Duration team and worked as an Analyst with the Institute for Research and Investment Services. Roeland started his career in the industry in 1997. He holds a Master's in Applied Mathematics from the University of Twente and a Master’s in Law from Erasmus University Rotterdam. Sander Bus is CIO and Portfolio Manager High Yield Bonds in the Credit team. He has been dedicated to High Yield at Robeco since 1998. Previously, Sander worked for two years as a Fixed Income Analyst at Rabobank where he started his career in the industry in 1996. He holds a Master's in Financial Economics from Erasmus University Rotterdam and he is a CFA® charterholder. The Robeco European High Yield fund is managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts. 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 seventeen 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.

The fund incorporates sustainability in the investment process via exclusions, ESG integration, a minimum allocation to ESG-labeled bonds, and engagement. 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. In the credit selection the fund limits exposure to issuers with an elevated sustainability risk profile. Furthermore, the fund invests at least 2% in green, social, sustainable, and/or sustainability-linked bonds. Lastly, where issuers are flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to engagement.

July presented challenges, but remained relatively calm for financial markets. Spreads in European high-yield bonds tightened slightly, decreasing by 19 basis points to hover just below 400 basis points. Additionally, the yield to worst also tightened by 32 basis points, concluding the month at 7.08%. Mixed signals coming from the strong labor market and signs of economic stagnation posed a complex situation for the ECB to navigate. However, concerns about persistent inflation led to the decision of a 25 basis point rate hike, bringing the benchmark rate to 3.75%. In the UK, inflation exhibited signs of cooling down, but still recorded a historically high 7.9% in June. Market expectations for the next rate hike are divided between a further 25 basis points and a 50 basis point increase from the current rate of 5%, with markets now pricing in the peak just below the rate level of 6%. Only EUR 3.5 bln in European HY instruments were issued in July, which is again a very low number in a historical context.

Based on transaction prices, the fund's return was 1.52%. The high yield bond index experienced a positive total return in July, driven by 19 basis points of spread tightening and favorable underlying government bond returns. The fund outperformed the benchmark by some 25-30 bps, resulting from a small negative impact from our underweight beta being more than offset by positive issuer selection. Bonds with higher ratings outperformed lower-rated ones on a risk-adjusted basis, both in euros and dollars. Our quality bias therefore made a positive contribution to the relative performance. Our off-benchmark position in financials, particularly in the banking sector, made a positive impact, while the underweight position in consumer cyclical securities had a partial detracting effect. Avoiding some of the highly leveraged telecom names continues to benefit us. On an individual security level, significant contributions to performance were made by the underweight positions in French telecom operator Altice and Telecom Italia.

Markets have been talking about the upcoming US recession for more than a year. Over the past few quarters, we have elaborated about the increased risks of a recession, too. As of yet, a recession has not arrived. In Europe, Germany did recently slip into a technical recession after we witnessed two consecutive quarters of negative GDP growth. Markets are stuck between a stubborn inflation environment and a pending recession. These are interconnected. To kill the inflation monster, central banks almost have to force the economy into a recession to cool off labor markets. The time-lags between central bank action and impact make it virtually impossible to avoid overshooting or undershooting. Risks lie in those parts of the market that are vulnerable to these much higher rates, like over-indebted LBOs or certain debt-laden sectors. Luckily we have not seen a capex cycle that has created over-supply situations. Yet, we think accidents are likely to happen, and have seen some already. Stock picking is ever more important, as the current environment will certainly create winners and losers. For now, the beta is below one.