Robeco Sustainable Property Equities I GBP

Folmer Pietersma is Portfolio Manager of the Robeco Sustainable Property Equities fund and member of the Sustainable Global Equities team. Prior to joining Robeco in 2007, Folmer worked at ABN AMRO Asset Management as a Portfolio Manager and Analyst Financials. He started his career at ING in 1997. He holds a Master's in Economics from the University of Tilburg and has a CEFA registration. Frank Onstwedder is Portfolio Manager of the Robeco Sustainable Property Equities fund and member of the Sustainable Global Equities team. He rejoined Robeco in 2018. Prior to that, Frank worked at NN IP in the period 2009-2018 as Head of Financials and Analyst Real Estate in the global equity research team, and as a portfolio manager at Lehman Brothers/Neuberger Berman in the period 2007-2009. In the periods 1994-1998 and 2000-2007 he worked at Robeco in various roles, including Portfolio Manager Robeco Property Fund, between those periods he worked at Aegon Investment Management. He holds a Master's in Econometrics from Erasmus University Rotterdam.

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, ESG and environmental footprint targets, and voting. The fund does not invest in 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 fundamental investment analysis to assess existing and potential ESG risks and opportunities. In the stock selection the fund limits exposure to elevated sustainability risks. The fund also targets a better ESG score and at least 20% lower carbon, water and waste footprints compared to the reference index. 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.

After the Fed hiked its the target rate by another 50 basis points in December to an upper bound of 4.5%, markets looked for direction pending the central bank's next step in early February. The market now anticipates the Fed to hike rates by a further 50-75 basis points during the first half of 2023. Meanwhile, US 10Y yields dropped 36 basis points to 3.51%, as CPI data seem to indicate easing inflationary pressures. Having reached a level of 2.56% in December, a level last seen in 2011, German Bund yields dropped almost 30 basis points to 2.28%. Global real estate stocks returned 7.0% (EUR), reversing the December loss and outperforming general equities. US and European real estate stocks outperformed the broader market, while Japanese real estate stocks underperformed. The BoJ's December loosening of its yield curve control is seen as a first step in exiting the BoJ's stimulus policy, increasing the risks of higher funding costs and a widening in cap rates.

Based on transaction prices, the fund's return was 6.58%. This month's outperformance was concentrated within the PropTech and non-assigned trend segments. In PropTech the fund's logistics holdings made a material contribution to performance. Of the three telco tower holdings, only Cellnex (+16.0%) made a positive contribution. The Spain-based telecoms infrastructure company traded higher on rumors of a takeover bid by American Tower and Brookfield. Data center REITs Equinix and Digital Realty traded higher with underlying demand drivers remaining strong, while network interconnection capacity is expected to grow by over 40% in 2020-2024. The Lifestyle segment outperformed the broader market, but negative stock selection resulted in an overall negative contribution. City Development and Sun Hung Kai lagged, having both been the top-performing holdings last year. The underweight in Vonovia also resulted in a negative contribution, as the stock bounced back after a 53% decline last year.

Commercial real estate fundamentals remain healthy in general. Employment growth is strong and labor markets are tight. Historically, employment growth has been a key demand driver of real estate space. The supply of new real estate space is increasing, but remains close to its historic average as a percentage of existing stock. Moreover, developed economies are expected to remain in an inflationary environment. In general, it is easier for a landlord to negotiate rent increases when other goods and services are also going up in price. While fundamentals remain supportive for property stocks, financing costs have risen sharply. This will affect the investment market and in particular the pricing of lower-quality assets. Ownership of property assets offers an attractive income stream and the opportunity to benefit from land value appreciation. Its attractive yield is even more valuable due to the sector's inflation-hedging attributes.