Bond markets are inefficient. Global macro fixed income returns are dominated by regime shifts and risk cycles; fear and euphoria. By combining a contrarian, value-based approach with the belief that global fixed income is not a singular market, we aim to exploit these inefficiencies over the cycle. Furthermore, fixed income markets are segmented, which can lead to dislocations and dynamic changes in relationships between sectors, offering active investors opportunities to improve returns and reduce risk on a consistent basis over the medium term.
The strategy uses five sources of return to reach the alpha target over the cycle:
Fixed income asset allocation
This is the most important source of return for the portfolio, where we look to determine where each of the major sectors lies in its current phase of the credit cycle – government bonds, investment grade, high yield, EM hard currency – and evaluate where we should be overweight and underweight relative to the benchmark.
We generally aim to have a portfolio yield that is higher than the benchmark over the cycle. This may include carry and rolldown in short-dated investment grade credit and on high quality spread products, such as supranationals and swap spreads, if valuations merit them.
Global and euro rates
We focus on cross-market, cross-currency and yield curve trades across Eurozone periphery and semi-core. The portfolio has frequently taken active positions in the US, Australia, New Zealand, Japan, South Korea and China.
Foreign exchange (FX)
We take a long-term horizon and a research-driven and secular approach towards FX.
Our dedicated global credit analysts carry out bottom-up company analysis, providing the foundation for issuer selection by portfolio managers.
The four steps of our investment process:
We gather fundamental inputs, analyzing major economies and placing them in cyclical context, looking at interest rate cycles and credit spread cycles. The result of the analysis is the Global Macro Quarterly Outlook, which the portfolio manager will leverage to help identify cyclical drivers and opportunities across fixed income classes.
We discuss and agree on where we believe different fixed income sectors sit within a cyclical framework. This forms the foundation for our strategic Fixed Income asset allocation positions.
We believe it is vital for overall portfolio risk to be managed in its totality on an ongoing basis. We take into account investment restrictions and specific fund guidelines when constructing and monitoring the portfolio, and besides standard portfolio risk measures, we use Robeco’s proprietary RiskPoints approach to measure portfolio credit spread risk as well as the Global Macro team’s DurationPoints to look at beta-adjusted rates exposure.
The final step is portfolio implementation. We have segregated functions for portfolio management and execution, with different teams comprising portfolio managers, portfolio engineers and traders. Portfolio managers give clear instructions while our portfolio engineering and trading team is responsible for portfolio implementation. This division of responsibilities allows portfolio managers to focus on their core role.
The portfolio managers are responsible for the overall positioning of the strategy, including cross-asset allocation within the fixed income universe, duration management, yield curve, and country and currency positioning. They are also responsible for the portfolio risks and the sourcing of ideas. The two portfolio managers are part of the Global Macro team, which consists of very experienced portfolio managers, economists, strategists and macro analysts. In addition to a formal meeting cycle to accommodate a structured approach to the investment process, the portfolio managers collaborate on a daily basis with the other team members. The team is further supported by and embedded in a broader Robeco framework of sustainability, trading and quant specialists.
Keeping turnover low for long-term benefits
A true understanding of the topic has been in our DNA since the start