Robeco Financial Institutions Bonds IH CHF

Jan Willem de Moor is Co-Head Portfolio Management 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 0.01% 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.

Financial markets were relatively calm in April, though spreads widened in the second half of the month. Problems in the US regional banking sector continued to pop up. First Republic Bank, which is mainly active in the market for wealthy clients, was the latest victim. The bank faces similar issues as other regional banks, with large unrealized losses on "assets held to maturity". In March, a group of larger US banks provided USD 30 bln of uninsured deposits to this bank to shore up liquidity. This did not turn the tide and the bank was finally acquired by JPMorgan. There was not much spillover of this stress at US regional banks to the European banking sector. The specific issues of deposit outflows and large exposures to commercial real estate are mostly a phenomenon for smaller US banks. The publication of first-quarter earnings by European banks demonstrated that the sector is in good health and that profitability is improving as a result of the more attractive interest rate environment. One European sector that continues to be under pressure as a result of higher interest rates is the real estate sector. We have no holdings in this sector.

Based on transaction prices, the fund's return was -0.05%. This return was mostly driven by the carry of subordinated bonds that trade at an attractive spread over government bonds. The average index spread ended the month at 294 basis points, 3 basis points tighter than at the end of March. Spreads reached an intra-month low at 277 basis points at the middle of April, after which spreads widened in the last weeks of the month. The index excess return of subordinated bonds over underlying government bonds was positive, at 0.4%. The performance of the underlying portfolio, measured gross of fees, was a bit 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. We closed the long swap spread position that we entered in March, when swap spreads had risen as a result of the troubles at SVB and Credit Suisse. The trade contributed positively as spreads tightened. The contribution of individual issuer selection was neutral. Positive contributions came from Aroundtown (no holding, underweight versus the benchmark), Aegon and Sabadell. Negative contributions came from Deutsche Bank, HSBC and Crédit Mutuel.

What happened at Silicon Valley Bank and Credit Suisse? We won't go into the finer details, but it starts with the rule of thumb that at the end of the hiking cycle (certainly after such a steep rise in central bank rates), there are casualties. In this case, two specific bank events occurred that we consider to be idiosyncratic – and which we do not believe mark the start of a systemic series of events. As a regional bank, Silicon Valley Bank operated under a flaw in the US banking regulation. Smaller banks have a lighter regulatory regime than the bigger banks. Naturally, the big US banks do not suffer from this regulatory flaw. Neither do European banks. We believe the banking sector has deleveraged a lot, capital ratios have increased and balance sheet risks have been made much more conservative. The fact that there are far fewer illiquid assets on balance sheets, liquidity has improved, and direct lines have been established to the central bank instead of Libor lines among the banks, means that this time around the banking sector is not the systemic risk factor. As valuation has improved sharply in March, we decided to increase our beta overweight position.