Robeco European High Yield Bonds 0IH EUR

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. 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. The Robeco European 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.

After a very strong start to the year for financial markets, we saw that somewhat reverse in February. Although high yield spreads tightened somewhat during the month, the rise in underlying sovereign yields pushed total returns into negative territory. Strong macro data was not confined to the US. Core inflation rose in the Eurozone, with unemployment data reaching record lows at 6.6%. Furthermore, there was support for growth going forward, with natural gas prices declining further by 18.6%. Although these figures contain good macro news, the data did raise concerns that inflation would prove to be more sticky than previously thought. This led to markets reassessing how fast central banks would react to these inflation figures and a potential 'no landing' scenario. Meaning that economic growth would remain strong and the current hiking path would not be sufficient to get inflation figures down. High yield company earnings and guidance continue to lean to the positive in the fourth quarter, which is consistent with the macro narrative. This hawkish sentiment pushed treasuries and Bunds wider. Spreads tightened 22 bps, where yields rose 28 bps respectively and are now 418 bps and 7.24%.

Based on transaction prices, the fund's return was -0.22%. The European high yield bond index had a total return in February of -0.22%, on the back of tighter spreads in combination with wider underlying rates. The latter was driven by increased concerns around a prolonged, hawkish ECB rate hike policy. The fund outperformed its benchmark by a few basis points. Our quality bias made a flat contribution, as BBs and single Bs had a similar performance on a risk-adjusted basis. On an issuer level, the largest detractors were our overweights in Warner Music Group (-3 bps), Canpack (-3 bps) and Cellnex (-5 bps). The latter one contributed negatively, as we hold the convertible bond that underperformed due to weaker equity sentiment. We gained by not owning any SoftBank or Rakuten (both 4 bps) and due to our overweight in Catalent (7 bps). Rumors that Danaher (an investment grade-rated competitor) would be interested in buying Catalent, caused bonds to move up a few points. Otherwise we benefited from our overweight in the automotive sector via Adient and ZF Friedrichshafen AG. The European automotive sector has seen a strong recovery since supply chain worries have come down in the past months.

Our base case is that the US as well as Europe will experience a recession in 2023. Although we expect the recessions to play out to be mutually reinforcing, the root cause will be different. The US is likely to experience a classic boom-bust cycle, whereas the European recession will be driven largely by an energy supply shock. As the probability of a recession rises and becomes part of the consensus view, market dispersion will increase. The lower-quality end of the credit spectrum is likely to see an increased default rate, while the higher end could benefit from lower rates and a flight to quality. Once a recession is fully priced in and spreads reach their own peak, that would be the time to go outright long, even in high yield. Typically, that point is reached well before default rates have peaked. The Fed and the ECB are determined to keep monetary policy tight until they see confirmation that inflation will reach their target. The good news is that inflation has started to moderate, which means the end of the hiking cycle is in sight. But that does not mean the Fed is anywhere close to cutting rates. Beta has decreased a bit as valuations have moved to long-term averages.