RobecoSAM Euro SDG Credits IH USD

Peter Kwaak is Portfolio Manager Investment Grade in the Credit team. Prior to joining Robeco in 2005, he was Portfolio Manager Credits at Aegon Asset Management for three years and at NIB Capital for two years. Peter has been active in the industry since 1998. He holds a Master’s in Economics from Erasmus University Rotterdam and he is a CFA® charterholder. Jan Willem de Moor is Co-Head Portfolio Management Investment Grade in the Credit team. Prior to joining Robeco in 2005, he worked at the Dutch Medical professionals’ pension fund as an Equity Portfolio Manager and at SNS Asset Management as an Equity Portfolio Manager. Jan Willem has been active in the industry since 1994. He holds a Master's in Economics from Tilburg University. The RobecoSAM Euro SDG Credits fundis managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts (of which four financials 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 dedicated quantitative researchers and 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.

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 solely invests in credits issued by companies with a positive or neutral impact on the SDGs. The impact of issuers on the SDGs is determined by applying Robeco's internally developed three-step SDG Framework. The outcome is a quantified contribution expressed as an SDG score, 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. ESG factors are integrated in the bottom-up security analysis to assess the impact of financially material ESG risk on the issuer's fundamental credit quality. Furthermore, the fund invests at least 10% 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.

The Euro corporate bond index return was down more than 1% this month, with interest rates moving sharply higher, while credit spreads were less volatile. The Euro corporate index spread actually tightened 4 bps to 148 bps at the end of the month. As a result, European corporate bonds slightly outperformed treasuries, delivering an excess return of +0.27%. At first, the strong momentum from January continued, but the market gave up these gains in the second half of February. Stronger-than-expected labor markets in the US, stubbornly high inflation numbers across the globe and hawkish central bank rhetoric were the main drivers. Treasury yields in Germany and the US moved up significantly during the month, driven by these macroeconomic developments. Expectations for future rate hikes went up, but the reaction in equity and credit markets was relatively calm. In the US, investment grade spreads widened a bit, while European credit still outperformed treasuries. The European Central Bank had already announced that it will reduce reinvestments of its bond purchase programs. This includes the corporate bond program and will start in March.

Based on transaction prices, the fund's return was -1.28%. The portfolio posted a negative return for the month. The Euro corporate index spread tightened 4 bps to 148 bps at the end of the month. As a result, European corporate bonds outperformed treasuries, delivering an excess return of +0.27%. Government bond yields moved up sharply, with the 10-year German treasury yield widening almost 40 bps to 2.65% at the end of the month. The portfolio slightly underperformed its benchmark index. Our credit beta policy made a small positive contribution to performance, as the beta was just above one and credit slightly outperformed treasuries. Issuer selection overall made a small negative contribution, as some large overweight positions slightly underperformed the market. Celanese, Raiffeisen Bank and Cellnex were among the largest contributors, but individual issuer selection effects were small.

We stick to our small overweight beta view on Euro credit. A hiking cycle often ends in a recession with rates typically peaking before credit spreads do. We believe we are in the valley between the two peaks. Rates have started to come down and may have peaked in some markets, as inflation is now slowly easing. Credit spreads have rallied since mid-October, but could widen again if a recession is deeper than currently anticipated by markets. Corporate fundamentals are strong, especially in investment grade. Recession risk is more an issue for high yield companies. Attractive valuations can be found in the European investment grade market, and especially in the banking sector. The market offers an average spread that is still above its long-term median level. It also trades cheaply versus its US equivalent. Hence we are comfortable holding a small long in European investment grade credit. Market technicals remain something to watch. Central banks will continue to be hawkish and asset purchase programs are being reduced or unwound. This means liquidity will be low and volatility is likely to stay with us in the medium term.