Research shows that factor investing strategies work well in corporate bonds, but actually building a portfolio requires greater care due to liquidity issues, Robeco’s quantitative experts argue in a new white paper.
The need for a specialized approach arises because there are significant differences between the liquidity of different credits - the ability to trade a bond in the desired amount at a reasonable price and within a reasonable time. No two corporate bonds are alike, and a naïve portfolio construction approach may not be enough to realize the better risk-adjusted returns of the factors.
In their latest research, ‘Implementing factor strategies in the corporate bond market’, quantitative researchers Mark Whirdy, Patrick Houweling, Frederik Muskens and Jeroen van Zundert outline how it can best be achieved. The white paper describes how Robeco’s quantitative portfolio construction framework systematically reconciles live liquidity information in the investment process.
While strategies that are tilted to factors – such as Low-Risk, Value, Momentum and Size – along with multi-factor portfolios have been around for years in equity markets, their application to corporate bonds was pioneered by Robeco. Conservative Credits portfolios tilted towards the Low-Risk factor have been offered since 2012, while the Global Multi-Factor Credits fund was launched in 2015.
“Even though there are many similarities between equities and credits, there are also important differences, particularly the liquidity of corporate bonds,” says Houweling. “Our quantitative portfolio construction framework embeds liquidity management in the implementation and systematically identifies and seizes trading opportunities as they arise.”
To receive a copy of the white paper, please register here
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US Persons.
Your details are not shared with third parties. This information is exclusively intended for professional investors. All requests are checked.
The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).
The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.