Robeco Sustainable Asian Bonds I USD

Based in Singapore, Thu Ha Chow is Head of Fixed Income Asia and Portfolio Manager with a focus on Asian credits. Prior to joining Robeco in 2022, she was Portfolio Manager and Asia Strategist at Loomis Sayles & Co and Head of Asian Credit at Aberdeen Asset Management, both in Singapore. Previously Thu Ha worked for 15 years in London where she held senior fixed income positions at Deutsche Asset Management and Threadneedle Asset Management in addition to 3 years in investment banking at Credit Suisse First Boston. She started her career in 1998 after obtaining a Master’s in Economics and Philosophy from London School of Economics. Reinout Schapers is Portfolio Manager Investment Grade in the Credit team. Prior to joining Robeco in 2011, Reinout worked at Aegon Asset Management where he was a Head of European High Yield. Before that, he worked at Rabo Securities as an M&A Associate and at Credit Suisse First Boston as an Analyst Corporate Finance. Reinout has been active in the industry since 2003. He holds a Master's in Architecture from the Delft University of Technology.

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 invests in credits issued by companies with a positive, neutral or low negative impact on the SDGs. The exposure to credits issued by companies with a low negative impact is at max 20% and the average SDG score of the fund must be greater than zero. The impact of issuers on the SDGs is determined by applying Robeco's internally developed three-step SDG Framework. The outcome is quantified with a proprietary SDG score methodology, 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. Financially material ESG factors are integrated in the bottom-up security analysis to assess the impact on the issuer's fundamental credit quality. Furthermore, the fund invests at least 5% 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.

Asian Credit's return was +0.27%, as total returns remained positive, despite relatively stable spreads in investment grade and high yield, as well as rising Treasury yields. In China, macro data continues to show weakness, with GDP for the second quarter of 2023 again falling below consensus expectations. The Chinese Politburo has pledged support for the property sector and highly indebted local governments. The Chinese central bank is maintaining an easing monetary stance, and the government continues to stimulate consumption in a targeted way. Given the current environment of disappointing growth, the Chinese property market remains under pressure. However, there might be some relief ahead, as the Politburo removed the phrase "houses are for living in, not for speculation" from its statements. Meanwhile, US Treasury yields continue to exhibit volatility, as the US economy displays resilience, despite slowing inflation and another 25 basis point Fed rate hike. The Bank of Japan (BoJ) made a significant policy shift by widening the band for 10-year Japanese government bonds in order to counter above-target inflation.

Based on transaction prices, the fund's return was 0.14%. The total return of the index in the month was 0.27% and that of the fund was 0.19%, underperforming the index by 8 bps. Within country selection, active overweights in South Korea and India added to performance. Within sectors, the underweights in sovereigns and agencies contributed negatively to the fund's performance, particularly as distressed issuers such as Sri Lanka and Pakistan's discussions with the IMF seem to be turning a corner. The overweights to financials and utilities added to performance.

Despite the US economy being in better shape than the European one, rates and recession fears are driving the current cycle for both economies. Rates volatility remains high, even with US Treasury yields close to the cycle peak. In this scenario we prefer a buy-on-dips (and sell-the-rally) approach. Without stimulus, the Chinese economy will struggle to recover post-Covid-19. This makes the outlook for many commodities less attractive. While valuations of Asian credit are still around the long-term average, they have tightened from levels seen late last year. Currently, we have taken some chips off the table by reducing the portfolio beta to just above neutral. As we wrote in our June Credit Quarterly Outlook, markets are stuck between a stubborn inflation environment and a looming recession. Central banks in developed markets may have to force a slowdown in order to combat inflation. As a result, technicals for the upcoming period will remain tough due to liquidity being withdrawn from the market. The unclear outlook for China adds to the overall uncertainty.