Robeco Euro Credit Bonds I EUR

Victor Verberk is CIO Fixed Income and Sustainability and Portfolio Manager Investment Grade Credits. Prior to joining Robeco in 2008, Victor was CIO at Holland Capital Management. Before that, he was Head of Fixed Income at MN Services and Portfolio Manager Credits at AXA Investment Managers. He has been active in the industry since 1997. Victor holds a Master’s in Business Economics from Erasmus University Rotterdam and he is a Certified European Financial Analyst. 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. 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 Euro Credit Bonds fundis 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 0.01% 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 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 total return on euro corporate bonds was more than 2% this month, with both interest rates and credit spreads moving down. The Euro corporate index spread tightened 15 bps to 152 bps at the end of the month. As a result, European corporate bonds outperformed treasuries, delivering an excess return of +0.98%. Government bonds also rallied, with the 10-year German treasury yield dropping 30 bps to 2.28% at the end of the month. Credit markets were strong this month, with both investment grade and high yield bonds outperforming treasury markets in Europe and the US. Treasury yields rallied, driven by more favorable inflation figures. This creates room for some central banks, such as the Fed, to sound less hawkish on upcoming policy steps. As a result, investor sentiment remained quite bullish. Markets seem to believe in a soft landing for the US economy, as the labor market and the services sector remain strong. In Europe, the gas reserves look solid and energy prices have come down, at least for this winter. 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 2.18%. The portfolio posted a positive return for the month. The Euro corporate index spread tightened 15 bps to 152 bps at the end of the month. As a result, European corporate bonds outperformed treasuries, delivering an excess return of +0.98%. Government bonds also rallied, with the 10-year German treasury yield dropping 30 bps to 2.28% at the end of the month. The portfolio outperformed its benchmark index. Our credit beta policy made a positive contribution to performance, as the beta was above one, while credit outperformed treasuries. Issuer selection also made a positive contribution, as several large overweight positions outperformed the market. Names like Cellnex, Celanese, Vonovia, Carnival and Autostrade did very well in this strong market. The long position in swap spreads contributed positively, as swap spreads tightened 4 bps this month. Banking senior and Tier-2 sectors performed in line with the market, leading to a neutral allocation effect. In these sectors we did pick the right bonds, resulting in a positive selection effect. As such our bank holdings overall made a positive contribution this month.

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. Recession risk is more an issue for high yield companies. Attractive valuations can be found in the European investment grade market, and especially in the banking sector. The market offers an average spread that is still above its long-term median level. It also trades cheaply versus its US equivalent. 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. This means liquidity will be low and volatility is likely to stay with us in the medium term.