Robeco Investment Grade Corporate Bonds 0I EUR

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. The Robeco Investment Grade Corporate Bonds 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 outside Luxembourg are subject to their national tax regime applying to foreign investment funds. We advise individual investors to contact their financial or fiscal adviser regarding their specific fiscal situation.

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 5% 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.

The Euro corporate non-financial index return was down more than 1% this month, with interest rates moving sharply higher, while credit spreads were less volatile. The Euro non-financial corporate index spread tightened 2 bps (basis points) to 123 bps at the end of the month. As a result, European corporate bonds outperformed treasuries, delivering an excess return of +0.2%. 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 -1.67%. The portfolio posted a negative total return for the month. The Euro non-financial corporate index spread tightened 2 bps (basis points) to 123 bps at the end of the month. As a result, European corporate bonds outperformed treasuries, delivering an excess return of +0.2%. 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 performed in line with its benchmark index. Our credit beta policy made a neutral contribution to performance, as the beta was close to one, while credit slightly outperformed treasuries. Issuer selection also made a neutral contribution overall. The overweight in TenneT added to performance, while the holding in Pepsi was a detractor.

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. Attractive valuations can be found in the European investment grade market. The market offers an average spread that is still above its long-term median level. This holds for non-financial corporates as well. We see plenty of opportunities, in corporate hybrids, lower-rated and longer maturity bonds. Euro corporates are also more attractive than USD investment grade. 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.