RobecoSAM Circular Economy Equities D USD

Natalie Falkman is Portfolio Manager of the RobecoSAM Circular Economy Equities strategy. Before joining Robeco in 2022, she was a portfolio manager for Kapitalinvest, a global equity, 5-star rated by Morningstar, fund at Swedbank Robur in Stockholm. Prior to that, she worked as the Head of Emerging Markets research at Carnegie (formerly HQ Bank), covering Eastern Europe and Africa, before shifting her focus to Nordic stocks. She started her career in 2002 as an equity research analyst at Deutsche Bank in Moscow covering utility and shipping sectors. Natalie holds a Master in Finance from Stockholm School of Economics.

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's sustainable investment objective is to finance solutions that support the transition from traditional production and consumption patterns toward a circular economy. Circular economy and sustainability considerations are incorporated in the investment process by the means of a target universe definition, exclusions, ESG integration, and voting. The fund only invests in companies that have a significant thematic fit as per Robeco's thematic universe methodology. Through screening on both Robeco's internally developed SDG Framework and Robeco’s exclusion policy, the fund does not invest in issuers that have a negative impact on the SDGs, are in breach of international norms or where products have been deemed controversial. Financially material ESG factors are integrated in the bottom-up fundamental investment analysis to assess existing and potential ESG risks and opportunities. In addition, where a stock issuer is flagged for breaching international standards in the ongoing monitoring, the issuer will become subject to exclusion. Lastly, the fund makes use of shareholder rights and applies proxy voting in accordance with Robeco's proxy voting policy.The following sections display the ESG-metrics for this fund along with short descriptions. For more information please visit the sustainability-related disclosures.The index used for all sustainability visuals is based on MSCI World Index TRN.

Weaker markets in October might be partly due to investors' rising belief that current interest rates could be too high to handle. High interest rates are already altering companies' incentives when it comes to investments, which in the long term dampens overall economic growth. They also muddle the transparency when it comes to the true underlying demand. For companies, keeping cash in high yielding deposits has become an attractive alternative, supporting their short-term earnings. However, the third-quarter results have also showed a number of strong demand tailwinds. Some examples are the reshoring trend, willingness to make strategic AI-investments, subsiding destocking headwinds for some markets, and continued governmental and regulatory support for environmentally positive investments. An additional factor that could support markets (this is if we exclude rising geopolitical risks), is close to universal investor cautiousness. The current mood is definitely risk-off, which manifests itself through reduced equity exposure and investors' preference for owning large-cap and mega-cap stocks rather than mid-cap and small-cap companies.

Based on transaction prices, the fund's return was -4.59%. In October, the strategy underperformed the broader MSCI World. A big part of the underperformance is attributed to two factors. Firstly, large companies performed better overall compared to smaller ones. This is illustrated by the S&P 500 outperforming the S&P Equal Weight, which in turn outperformed the Russel 2000, which then outperformed the Russel Microcap. Historically, company size is a factor that often outperforms during risk-off periods. The Circular Economy Fund has a skew to smaller companies compared to the broader MSCI World. This is partly because the fund strives for high thematic alignment and partly because, fundamentally, we believe that the less researched part of the market, in the longer term, has the ability to generate attractive returns for investors. The second key factor behind October's underperformance is the negative performance of stocks where higher-for-longer interest rates are perceived by investors as leading to demand softness. In October, the strategy outperformed the internal thematic benchmark. A larger exposure to companies with relatively higher recurring sales in the industrials, technology and healthcare sectors was a positively contributing factor.

As we now head toward the final two months of 2023, the sentiment among investors is cautious, to say the least. One of the main causes behind the risk-off mood is whether the interest rates are becoming too high to handle. The ongoing destocking and the sharply risen geopolitical risks add to the cautiousness and reduce transparency for future demand. There were a number of new learnings from the still-ongoing Q3 reporting. For many companies, the sell-out demand was above the sell-in. We interpret that as the hefty destocking masking a stronger underlying demand. Many companies also spoke of top-down decisions with customers to minimize inventories and focus on cash flows. We believe that the ongoing destocking in many sectors will allow many companies to set a good base when entering 2024. Reshoring was also mentioned by many companies, especially in the US, as providing real demand tailwinds. That support should continue in 2024. However, as we enter an election year in the US, we are aware that the discussions on the extent of support to move to a greener, cleaner economy could swing market sentiment next year.