Robeco Financial Institutions Bonds IH USD

And yet again a hard Brexit was avoided, which was the biggest driver for spread tightening of financial debt in October. As soon as it became clear that the EU and the UK would reach a new deal on a soft Brexit, spreads of UK bank bonds started to rally. In a time span of only ten days, Tier 2 bonds of for instance Barclays and Nationwide saw their spreads rally by 50 to 80 basis points. It is clear that a large part of the market has been avoiding UK bank risk over the past months. Financial spreads in other markets tightened too, just like other risky assets performed well in October. Optimism about US-China trade talks was another driver for better risk sentiment. European government bond yields rose in this environment, which should give some relief for banks and insurance companies. Some banks tapped the market in October, issuing CoCos or Tier 2 bonds. Early October, we bought a new Tier 1 CoCo issued by Allied Irish Bank, followed by a Tier 2 bond issued by Bank of Ireland a few days later. Both bonds performed very well, especially after it had become clear that a hard Brexit would be avoided. We did not buy new CoCos with lower reset spreads, like SEB and UBS.

All currency risks are hedged.

Robeco Financial Institutions Bonds fund make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid.

This share class of the fund does not distribute dividend.

Our analysis of issuers goes beyond the traditional financial factors and includes the issuers’ performance on ESG factors. We deem it essential for a well-informed investment decision to take into account those ESG factors that have the potential to materially impact the financial performance of the issuer. This perfectly matches the basic need to avoid the losers in credit management, as many credit events in the past can be attributed to issues such as poorly designed governance frameworks, environmental issues, or weak health & safety standards. The aim of ESG integration is to improve the risk/return profile of the investments and does not have an impact goal. ESG analysis is fully integrated in the bottom-up security analysis. We have defined key ESG factors per industry, and for every company we analyze how the firm is positioned versus these key ESG factors, and how this impacts the fundamental credit quality.

Robeco Financial Institutions Bonds mainly invests in subordinated euro-denominated bonds issued by financial institutions. The fund offers a diversified exposure across 50-60 issuers, including the new style hybrid bonds that are being issued on the back of Basel III regulation. Focus of the fund are higher rated bonds (investment grade) with a tilt to Tier 2 bonds. The fund aims to outperform its index Barclays Euro-Aggregate: Corporates Financials Subordinated 2% Issuer Cap. The index applies an issuer cap to avoid concentration risk. The investment philosophy is based on managing a solid diversified portfolio with a long term view. Top-down beta positioning is based on the outcome of our credit quarterly outlook meeting, in which the team is discussing the fundamental market outlook, valuation of bond markets and market technicals. Bottom-up issuer research is executed by our credit analysts, who execute the fundamental analysis. The portfolio managers are responsible for the portfolio construction. A proprietary developed risk management approach avoids high risk concentration in the portfolio. As the investment process is well-structured and proven over time, it contributes to repeatable performance delivery. Duration of the portfolio is managed in line with the index and currency exposure is hedged.

Risk management is fully embedded in the investment process to ensure that positions always meet predefined guidelines.