Robeco Financial Institutions Bonds D EUR

Jan Willem de Moor is Portfolio Manager Investment Grade in the Credit team. Prior to joining Robeco in 2005, he worked at the Dutch Medical professionals’ pension fund as an Equity Portfolio Manager and at SNS Asset Management as an Equity Portfolio Manager. Jan Willem has been active in the industry since 1994. He holds a Master's in Economics from Tilburg University. The Robeco Financial Institutions Bonds fund is managed within Robeco’s credit team, which consists of nine portfolio managers and twenty-three credit analysts (of which four financials 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 dedicated quantitative researchers and 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 0.05% 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.

The fiscal consequences of investing in this fund depend on the investor's personal situation. For private investors in the Netherlands real interest and dividend income or capital gains received on their investments are not relevant for tax purposes. Each year investors pay income tax on the value of their net assets as at 1 January if and inasmuch as such net assets exceed the investor’s tax-free allowance. Any amount invested in the fund forms part of the investor's net assets. Private investors who are resident outside the Netherlands will not be taxed in the Netherlands on their investments in the fund. However, such investors may be taxed in their country of residence on any income from an investment in this fund based on the applicable national fiscal laws. Other fiscal rules apply to legal entities or professional investors. We advise 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 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.

Credit spreads tightened in July, reflecting optimism that the economy has weathered inflation and interest rate shocks without significant recessionary pressures. Risky assets were boosted by softer inflation data in key economies, such as the lowest reported core CPI print in the US since February 2021. Despite evidence that inflation is declining, signs of a robust economy and strong labor markets placed selling pressure on underlying government bond yields. At the end of the month, the results of the European bank stress test were published. As expected, the outcome did not contain significant surprises and the publication of the results was no market driver. Banks like Barclays, CaixaBank, HSBC and BBVA announced the redemption of CoCos that have their first call date in September. Although not unexpected, this did help in further restoring confidence in the asset class of AT1 CoCos. Bank earnings so far have also contributed to the positive sentiment for financials. It is clear that most banks are enjoying the higher interest rate environment, while credit quality in their loan books remains benign for now.

Based on transaction prices, the fund's return was 1.47%. This return was driven by a combination of carry and spread tightening of subordinated bonds and outperformance versus the index. The average index spread ended the month at 269 basis points, 14 basis points tighter than at the end of June. The index excess return of subordinated bonds over underlying government bonds was positive, at 1.1%. The performance of the underlying portfolio, measured gross of fees, was better than that of the index. The portfolio had a beta overweight position during the month, which contributed positively, as the asset class had a positive excess return over government bonds. The contribution of individual issuer selection was just negative. Looking at individual names, the largest positive contributors to the relative performance were the underweights (no positions) in Unibail-Rodamco and Aroundtown. Other positive contributions came from the overweights in Deutsche Bank, Société Générale and ING Group. Our holdings in Achmea, Fidelidade and Raiffeisen Bank contributed negatively.

We are in a period that marks the end of a 15-year experiment of low and negative interest rates. This has ended in an overheated situation where central banks were forced to act aggressively. Markets are now 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. In this environment, a buy-on-dips (and sell-the-rally) strategy from a conservative basis remains our preferred approach. Although 10-year German Bund yields seem close to the cycle peak, volatility and uncertainty remain. Valuations for financials are still relatively attractive, especially taking into account that European banks are enjoying the tailwind of higher interest rates. Still, we have taken some chips off the table, mostly by reducing our holdings in CoCos a bit. This enables us to buy on the dip again, in the event that we would see more volatility again in the second half of the year.