Robeco High Yield Bonds Feeder Fund - zero duration IH EUR

Sander Bus is CIO and Lead Portfolio Manager Global High Yield Bonds. 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. Roeland Moraal is Lead Portfolio Manager European 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. The Robeco 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 0.01% 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.

Investors who are not subject to (exempt from) Dutch corporate-income tax (e.g. pension funds) are not taxed on the achieved result. Investors who are subject to Dutch corporate-income tax can be taxed for the result achieved on their investment in the fund. Dutch bodies that are subject to corporate-income tax are obligated to declare interest and dividend income, as well as capital gains in their tax return. Investors residing outside the Netherlands are subject to their respective national tax regime applying to foreign investment funds. We advise individual 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.

Not often have we seen months that were this stable in terms of spreads and yields. Spreads and yields both rose by 1 bp, to 453 bps and 8.22% (hedged to EUR). Intra-month volatility was very low as well. Investors had to digest the volatility around the US regional banks that shook markets in March, and were otherwise focused on the start of the earnings season and on macro data that could be relevant for central bank actions. In this relative calmness, primary markets reopened again: the number of deals reached almost 20 bln in the US alone, more than triple the amount that companies were able to print in March. However, this number is still a far cry from the normal issuance levels we have seen on average over the last 10 or so years. Default activity picked up in April, with several larger issuers in retail and healthcare going into restructuring.

Based on transaction prices, the fund's return was 0.39%. The high yield bond index had a positive total return in April, which was purely a matter of earning the carry in high yield as yields and spreads traded sideways. The fund performed in line with the benchmark, and the contributions from beta and issuer selection were both close to neutral. In the US market, lower quality outperformed. In Europe, we saw the opposite picture. Our quality bias made a small negative contribution. As Europe slightly underperformed the US, our overweight in Europe also detracted slightly. Positive contributions came from avoiding names like Envision and Lannett, both healthcare companies that defaulted in April. Not owning index heavyweight Dish Networks also contributed nicely. This satellite television company is burdened with too much debt and its competitive position is at risk. Even its most senior debt yields 15%, a clear sign that restructuring will be unavoidable.

Our base case remains that the US as well as Europe will experience a recession in 2023. We are coming from a prolonged period of (too) easy monetary policy and low or even negative yields. The result is a US economy running hot, and a persistent inflation problem both in the US and in Europe. Central banks have been on an aggressive rate hiking path, and their goal is to tame the inflation beast, be it at the cost of driving the economies into a recession. This is typically the environment where 'things break' and accidents happen. Likely victims are over-leveraged companies that are now facing a rapid rise in their cost of debt. Think CCC companies, leveraged LBOs, or companies in sectors that were perceived to be stable and hence loaded with debt like in telecom. The question is: what is priced in? With all-in yields now at 7.5% to 8.5%, a lot of additional widening is needed for total returns to become negative. We will continue to take an active beta approach and are currently close to a beta of 1. We stay up-in-quality. Stock picking is ever more important, as the current environment will certainly create winners and losers.