RobecoSAM Circular Economy Equities F USD

Natalie Falkman is Portfolio Manager of the RobecoSAM Circular Economy Equities strategy. Before joining Robeco in 2022, she was a portfolio manager for Kapitalinvest, a global equity, 5-star rated by Morningstar, fund at Swedbank Robur in Stockholm. Prior to that, she worked as the Head of Emerging Markets research at Carnegie (formerly HQ Bank), covering Eastern Europe and Africa, before shifting her focus to Nordic stocks. She started her career in 2002 as an equity research analyst at Deutsche Bank in Moscow covering utility and shipping sectors. Natalie holds a Master in Finance from Stockholm School of Economics.

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's sustainable investment objective is to finance solutions that support the transition from traditional production and consumption patterns toward a circular economy. Circular economy and sustainability considerations are incorporated in the investment process by the means of a target universe definition, exclusions, ESG integration, and voting. The fund only invests in companies that have a significant thematic fit as per Robeco's thematic universe methodology. Through screening on both Robeco's internally developed SDG Framework and Robeco’s exclusion policy, the fund does not invest in issuers that have a negative impact on the SDGs, are in breach of international norms or where products have been deemed controversial. Financially material ESG factors are integrated in the bottom-up fundamental investment analysis to assess existing and potential ESG risks and opportunities. In addition, where a stock issuer is flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to exclusion. Lastly, the fund makes use of shareholder rights and applies proxy voting in accordance with Robeco's proxy voting policy.The following sections display the ESG-metrics that are relevant for this fund along with short descriptions. For more information please visit the sustainability-related disclosures. The index used for all sustainability visuals is based on [Index name].

From the lens of the Circular Economy Fund, the month of August was dominated by two themes. One is the continued poor sentiment for solar-exposed stocks. The other is the interest rate volatility dictating equity markets' movements. Considering the appalling solar sentiment, it is good to be reminded that the opposite was true at the beginning of this year. Considering the true underlying demand, commercial solar markets continue to be very strong, in all the important regions. However, residential solar markets have weakened, especially in the US. The Circular Economy Fund is mainly focused on commercial installations (through two solar holdings), where the use of the right solutions can lead to large resource and energy savings. For a long-term investor, attractive entry points present themselves when the sentiment is indispensably bearish. Looking at the equity markets' response to this month's interest rate movements, it becomes quite clear that for equities, the prospects of fewer interest rates hikes outweigh potential concerns around economic data being weak.

Based on transaction prices, the fund's return was -3.93%. In August, the strategy underperformed the broader MSCI World Index. Three stocks are behind the relative underperformance. Two solar-exposed names, SolarEdge and Shoals, and a power semiconductor company, Infineon. The solar-exposed companies experienced a sharp sentiment deterioration, especially during the summer months. We are likely close to the peak bearishness towards solar companies. The two solar companies predominantly serve commercial solar clients, where demand continues to be strong, but the companies are still impacted by the overall unfriendly solar sentiment. Infineon's price weakness can be attributed partly to the high expectations that were not fully met in the latest quarterly report, and partly also to the unwinding of the benefits from the Covid-era supply overstocking frenzy. However, the key underlying demand is continuously strong, supported by growth in electric vehicles sales globally. The largest positive relative contribution versus the MSCI World Index came from the electrical companies that service the utilities sector. In August, the strategy slightly underperformed the internal thematic benchmark.

The month of August illustrated clearly that at the current high levels of interest rates, the prospects of fewer rate hikes outweigh potential concerns around economic data being weak. Equity investors seem to view additional rate hikes as being negative for underlying demand, both retail and corporate, as well as negative for the current AI darlings and their relatively high valuations. Fresh macro data on employment indicates that labor markets are starting to cool off. Investors hope that for the Fed, these numbers should help to abate inflationary concerns. The balancing act of a soft landing seems to still be the base case, which would be supportive of equity markets for the remainder of this year. The positive parameter for many of the fund's holdings is that investments in sustainability and electrification remain consistent. Companies and governments continue to invest in becoming cleaner and more innovative to retain attractive partners and suppliers as their clients. This does not only support underlying demand for these companies but also creates visibility, allowing further investment in top-line growth.