Robeco Global Credits Feeder Fund - zero duration IH GBP

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. Reinout Schapers is Portfolio Manager Global & Emerging Credits in the Robeco Credit team. Prior to joining Robeco in 2011, Reinout worked at Aegon Asset Management where he was a Head of European High Yield. Before that, he worked at Rabo Securities as an M&A Associate and at Credit Suisse First Boston as an Analyst Corporate Finance. Reinout has been active in the industry since 2003. He holds a Master's in Architecture from the Delft University of Technology. The Robeco Global Credits 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.

Markets got off to a very strong start in January and spreads continued to grind tighter during the month. Compared to December, issuance picked up at the start of the month, which slowed down by the end as the market moved into a blackout period, the time when issuers are not allowed to issue bonds before their results come out. Positive news flow was centered around energy prices in Europe. These continued their decline to a similar level last seen before the war in Ukraine and in September 2021. The risk that gas reserves in the 2024 winter would be depleted is lower as Germany received its first LNG cargo on its new floating terminal. China continued to reopen the economy during the celebration of its Lunar New Year. The government has expanded policies to improve and stabilize the Chinese housing market. In the US, leading indicators such as yield curves and the Conference Board's index indicate a recession is still highly likely. More favorable inflation figures led to a repricing of interest rates. Central banks might be closer to peak interest rate levels.

Based on transaction prices, the fund's return was 1.95%. The Global Aggregate Corporate Bond Index returned 3.21% (hedged to EUR) this month. Excess returns for the index were positive: 1.15%. The credit spread on the Bloomberg Global Aggregate Corporate Bond Index tightened from 147 to 134 basis points for the month. Both German and US 10-year yields tightened to 2.29% and 3.51% respectively. The underlying fund outperformed the index. Our top-down positioning and issuer selection contributed positively to performance. Euro investment grade bonds outperformed dollar-denominated bonds; a positive allocation for the month. Overall, our financials positions contributed positively for the month; specifically, senior financials. We continue to hold a position in swap spreads, where we are long 5-year European swap spreads. The contribution this month was neutral. The biggest movers were (in absolute terms): Cellnex Telecom SA, Carnival Cruises and Bank of Ireland.

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, while inflation is now easing. Credit spreads have also rallied a lot since mid-October, but are set to re-widen when markets start anticipating a recession that would hit corporate health. This is particularly the case for high yield credits. The probability of a recession rises and is increasingly becoming part of the consensus view. Once a recession is fully priced in and spreads reach their peak, it would be the time to go outright long across credit classes. Attractive valuations can be found in European investment grade and especially in financials. This market offers spreads that are above median levels and it also trades cheaply versus its US equivalent. Hence we are comfortable holding a small long in 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.