Robeco Financial Institutions Bonds DH USD

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.

European credit spreads continued the strong tightening path that started in the middle of October of last year. Underlying government bond yields now also came down from their peak levels of the end of December, which means that credit markets started the year with a positive return. Though inflation numbers still show a gradual decline in inflationary pressure, the ECB keeps on emphasizing that the hiking cycle is not over yet. This did not derail the positive sentiment in capital markets, where almost all asset classes experienced a positive start of the year. European banks are showing the positive impact of higher interest rates in their earnings reports, which was noticed well in the equity market. Banks took advantage of the strong credit market sentiment. Bond issuance took off right from the first trading day of the year. New Tier 2 bonds were issued by banks like Belfius, Credit Mutuel, BPCE and KBC. As these new deals come with attractive reset spreads, we participated in many of them. There also was new issuance of bank CoCos. We participated in the new deals of BNP Paribas and Crédit Agricole.

Based on transaction prices, the fund's return was 3.10%. The portfolio posted a return that was positive in January. This positive return was driven by tightening of credit spreads and a decline in underlying government bond yields. The average index spread ended the month at 258 basis points, which is 25 basis points lower than at the end of December. The index excess return of subordinated bonds over underlying government bonds was therefore positive, at 1.6%. The performance of the portfolio was better than that of the index. The portfolio had a beta overweight position during the month (circa 1.1). The contribution of this overweight was positive. The largest part of the outperformance can be attributed to issuer selection. Bank CoCos outperformed on a risk-adjusted basis, while insurance CoCos underperformed. Most of the relative performance can be attributed to individual name selection. Positions that contributed the most, on a risk-adjusted basis, were Raiffeisen Bank, Aroundtown (underweight), HSBC and Banco Comercial Português. The portfolio lost in relative terms through the underweight in Unibail-Rodamco and the overweights in BNP Paribas and Aegon.

A hiking cycle often ends in a recession with rates typically peaking before credit spreads do. Rates have started to come down and may have peaked in some markets, while inflation is now easing. Our base case is that the US as well as Europe will experience a recession in 2023. The US is likely to experience a classic boom-bust cycle, whereas the European recession will be driven largely by an energy supply shock. European swap spreads are still at elevated levels, with 5-year spreads at 65 bps. With increased issuance of sovereign paper and the prospect of quantitative tightening (QT) next year, we expect a further normalization of swap spreads towards long-term average levels of 40 bps. This is helpful for euro investment grade since swap spreads are a large component of the total spread versus governments. Within euro investment grade, financials screen relatively cheap. In past cycles, financials were often seen as high beta since they are a leveraged bet on the economy. This time around, we see banks as less vulnerable since capital buffers have greatly improved and banks are benefiting from an interest rate environment that has finally normalized.