Robeco High Yield Bonds Feeder Fund - zero duration IH EUR

Sander Bus is CIO and Portfolio Manager High Yield Bonds in the Credit team. 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. Roeland Moraal is Portfolio Manager 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. The Robeco 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.

Spreads in the high yield market narrowed by 20 basis points to reach new lows since April 2022, and the yield to worst concluded the month 20 basis points tighter at 8.03%. Unemployment rates near a multi-decade low and stronger-than-expected wage growth keep providing evidence to policymakers that the hiking cycle may not be over. Despite the first signs of declining core inflation, the Fed followed up with a 25 bps rate hike. Potential clouds to the growth picture from either the strong rise in the oil price, the debt ceiling or the required resumption of the very sizable federal student loan repayments did not significantly impact markets, which increasingly prices in a soft landing. In Europe, inflation showed signs of slowing, albeit from very high levels. With mixed data observed at the country level, it still led the ECB to raise interest rates by another 25 basis points. July marked the second-lowest month of 2023 in terms of bond issuance, with USD 6.7 billion worth of US high-yield bonds priced. Additionally, default activity remained relatively muted, with only four defaults affecting the market and impacting a relatively small volume of USD 3 billion.

Based on transaction prices, the fund's return was 1.17%. The high yield bond index experienced a positive total return in July of well over 1%, driven by 20 basis points of spread tightening and favorable underlying government bond returns. The fund outperformed the benchmark by some 20 bps. This was the result of a small negative impact from our underweight beta being more than offset by positive issuer selection. Bonds with higher ratings outperformed lower-rated ones on a risk-adjusted basis, both in euros and dollars. Our quality bias therefore made a positive contribution to the relative performance. Our underweight US versus overweight Europe resulted in a slightly negative contribution. On a sector basis, our overweight position in financials, particularly in the banking sector, made a positive impact, driven by Tier-1 and Tier-2 bonds. Another larger contribution came from our underweight in communications, the clear laggard among all corporate sectors. On a stock level, major contributors to performance were our active underweight position in Altice and overweight position in Level 3.

Markets have been talking about the upcoming US recession for more than a year. Over the past few quarters, we have elaborated about the increased risks of a recession, too. As of yet, a recession has not arrived. In Europe, Germany did recently slip into a technical recession after we witnessed two consecutive quarters of negative GDP growth. Markets are stuck between a stubborn inflation environment and a pending recession. These are interconnected. To kill the inflation monster, central banks almost have to force the economy into a recession to cool off labor markets. The time-lags between central bank action and impact make it virtually impossible to avoid overshooting or undershooting. Risks lie in those parts of the market that are vulnerable to these much higher rates, like over-indebted LBOs or certain debt-laden sectors. Luckily we have not seen a capex cycle that has created over-supply situations. Yet, we think accidents are likely to happen, and have seen some already. Stock picking is ever more important, as the current environment will certainly create winners and losers. For now, the beta is below one.