RobecoSAM Climate Global Credits 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 Co-Head Portfolio Management Investment Grade in the 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. 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 RobecoSAM Climate Global Credits 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’s sustainable investment objective is to contribute to keeping global temperature rise well-below 2°C by reducing the carbon footprint of the fund. Climate change and sustainability considerations are incorporated in the investment process via exclusions, ESG integration, a minimum allocation to ESG-labeled bonds and a carbon footprint target. The fund does not invest in companies that are in breach of international norms and applies the activity-based exclusions of Article 12 of the EU regulation on Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks as per Robeco’s exclusion policy. ESG factors, including climate change, are integrated in the bottom-up security analysis to assess the decarbonization potential and the impact of financially material ESG risks on the issuer's fundamental credit quality. Furthermore, the fund invests at least 5% in green, social, sustainable, and/or sustainability-linked bonds. In the portfolio construction the fund targets a carbon footprint at least equal to or better than the Solactive Paris Aligned Global Corporate Index. This is to ensure the fund is aligned with the desired decarbonization trajectory of an average 7% year on year.

Global investment grade corporate bonds were down more than 2% this month, with interest rates moving sharply higher, while the rally in credit spreads came to an end. The credit spread on the Solactive Paris Aligned Global Corporate Index widened 3 bps (basis points) from 125 to 128 basis points. At first, the strong momentum from January continued, but the market gave up these gains in the second half of February. Stronger-than-expected labor markets in the US, stubbornly high inflation numbers across the globe and hawkish central bank rhetoric were the main drivers. Treasury yields in Germany and the US moved up significantly during the month, driven by these macroeconomic developments. Expectations for future rate hikes went up, but the reaction in equity and credit markets was relatively calm. In the US, investment grade spreads widened a bit, while European credit still outperformed treasuries. The European Central Bank had already announced that it will reduce reinvestments of its bond purchase programs. This includes its corporate bond holdings and will start in March.

Based on transaction prices, the fund's return was -2.61%. The Solactive Paris Aligned Global Corporate Index returned -2.61% (hedged in GBP). The credit spread on the Solactive Paris Aligned Global Corporate Index widened 3 bps (basis points) from 125 to 128 basis points. Treasury yields in Germany and the US moved up significantly during the month. The fund outperformed its Paris aligned index by 0.11% (hedged in GBP). Our top-down beta positioning made a neutral contribution to the fund's performance. Corporate bonds only slightly underperformed treasuries, and the portfolio beta was only just above one. A significant positive contribution came from issuer selection, as several large issuer positions paid off this month. TenneT, Star Energy and SSE all made positive contributions. We continue to hold a small position in European swap spreads.

We stick to our small overweight beta view on investment grade 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 euro 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 via 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.