In the volatile high yield bond market Robeco High Yield Bonds’ investment process has to prove its strength. Morningstar is convinced it can. “Because of its stable and experienced management team, solid track record and low costs, this fund deserves Morningstar’s Silver rating.”
Bears abound in the high yield bond market. Volatility is being fed by the recent fears of a US recession, the ongoing concerns regarding Chinese economic growth, and the resulting low prices for oil and commodities. Sure, there are problems, but some are more a matter of perception. “Some sectors within the high yield market are showing significant weakness, but the asset class as a whole can provide investors with solid returns as long as they take a cautious and focused approach”, states Sander Bus, portfolio manager of Robeco High Yield Bonds. “Investment opportunities arise, particularly in stressed markets. The high yield bond market is a long-term market and investors must keep their nerve and not be put off by day-to-day volatility.”
Now is a good time for Robeco High Yield Bonds’ bottom-up investment process to prove its strength, as it has done in the past. The fund has actually increased its risk-adjusted market exposure, or beta, to an overweight 1.1 on the strong belief that positive returns will come to those who are patient. A beta above 1 means that the fund moves more than the market does. So if markets go down the fund falls further, but if they rise the fund gains more.
"We are actively looking for opportunities in sectors where the sentiment and management behavior is shifting in favor of bondholders", says Bus. "We have been reducing our underweights in the energy and metals & mining sectors by buying into companies that we assess as likely survivors and that have been dragged down by the weak sector trends. But we remain underweight in the lower quality names."
"In metals & mining we have moved to a small overweight because we feel that the consensus has become too bearish and metal prices seem to stabilize. It is generally a case of finding those companies that are sufficiently capitalized to ride out the storm. In the metals & mining industry we see some individual companies actively strengthening their balance sheets by reducing debt. Although equity investors don’t like this, it is in favor of bondholders like us."
Also in the CCC-rated segment of the high yield bond market the weakest companies are dragging down the rest, according to Bus. For a long time the fund manager has been underweight in companies with a triple C credit rating and overweight in higher quality issuers with ratings of B and above, as he beliefs that the compensation for risk in this risky segment of the high yield bond market is generally insufficient.
"But for the first time for a long time we now see value in some specific CCC bonds that trade at levels that are fundamentally not justified. Overall we will stick to our quality bias and here again it comes down to specific investment opportunities at specific companies."
It is Sander Bus’ consistent approach that has convinced Morningstar analyst Niels Faassen to give Robeco High Yield Bonds a Morningstar Analyst Rating of 'Silver'. This means that Faassen expects the mutual fund to structurally achieve higher overall returns than similar funds and/or the benchmark over an economic cycle.
"Bus focuses on the higher segment of the high yield bond market, has a conservative approach but is able to add value for investors in both rising and falling markets", says Faassen. "It is interesting to see how Bus deals with energy companies. For a long time he was pessimistic about the energy sector with its highly leveraged companies. We believe that the fund has sound risk management and employs a disciplined investment process."
'We appreciate the fact that the managers invest in their own fund'
According to Faassen, Bus is not prepared to go to any lengths to generate returns. "The downside risk for Robeco High Yield Bonds is lower compared to other funds and it performs well in both rising and falling markets mainly through strong bottom-up selection. Over ten years Robeco High Yield Bonds has generated an annualized return of 5.71%1 and outperformed the benchmark (Barclays US Corp. HY & Pan Eur. HY. ex Financials) slightly (27 basis points) and the Morningstar category (Global High Yield Bonds - EUR hedged) by a considerable margin (137 basis points). A particularly good performance if you take into account the high transaction costs in the high yield market, especially in stressed markets, and the fact that the fund’s returns are compared to an index which has no transaction costs."
The investment process gives the Robeco fund managers considerable freedom. This means it is possible for them to take off-benchmark positions in investment grade bonds, financials and asset-backed securities. Bus: "Our financials exposure is small at around 4% of the fund’s value as per the end of January and we only invest in the higher quality banks. This is a great addition to the portfolio in terms of diversification and enhancing performance." For analyst Faassen this freedom is not an issue because of the fund’s solid risk management and its proven strategy over the long term.
Morningstar thinks highly of lead manager Sander Bus and co-manager Roeland Moraal. “Both managers are highly experienced and have been working on this fund for more than ten years. Bus has actually been involved in the fund since the very beginning in 1998. He is one of managers in Morningstar’s category of high yield bond fund managers with the longest tenure”, explains Faassen. "We are also pleased to see that the number of analysts keeps pace with the growth in assets under management. And last but not least, we appreciate the fact that the managers invest in their own fund. In our view, this ensures that the interests of investors and fund managers are better aligned.”
The estimated ongoing charges of 0.67%2 for Robeco High Yield Bonds are lower than the median of 0.85% for similar rebate-free funds in the Morningstar category ‘Global High Yield Bonds - EUR Hedged’. Faassen: "This fund is one of the cheapest funds in the category, which gives Robeco Global High Yield Bonds an important advantage. In this case, the low fee has nothing to do with the quality – you are getting more than you pay for.
When asked for, Faassen says it is hard to point out any negative aspects regarding Robeco High Yield Bonds. The funds scores well on management team, investment process, performance and costs. "It is good to see that a mutual fund with so much quality, experience and proven track record is so stable. Robeco High Yield Bonds is one of our favorite funds in the global high yield category."
1 Source: Robeco FH EUR share class figures net return based on net asset value in EUR. The value of your investments may fluctuate. Results obtained in the past are no guarantee for the future.2 Robeco FH EUR rebate free share class
**** (as of October 2015)
Morningstar Analyst Rating for Robeco Global Premium Equities
Silver (as of October2015)
Morningstar operates independently and uses two different methods to analyze and rate mutual funds: the first is quantitative – based on historical returns (the Morningstar Rating, also known as the ‘Star Rating’). The second is qualitative in nature, focusing on several characteristics of a fund (the Morningstar Analyst Rating).
The Morningstar Rating uses an automated process with a scale of one to five stars to assess a fund’s historical returns. These returns are adjusted for risk and compared to the fund’s peers. Funds that have performed better than their peers over a period of several years receive four or five stars. Funds that perform less well are awarded one or two stars and those in between, three stars.
Since only historical data is used in the Morningstar stars calculation, the valuation is backward looking and says nothing about a mutual fund’s future performance. This is where the Morningstar Analyst Rating comes in, which is forward looking and takes into account factors that affect the future performance. The Morningstar Analyst Rating is given by an analyst after a thorough analysis of the fund. He awards the qualifications of Gold, Silver, Bronze, Neutral or Negative.
In order to arrive at an Analyst Rating, the Morningstar analyst assesses the five Ps of a mutual fund: People (management team), Parent (fund company), Process (investment process), Performance (for risk adjusted return) and Price (ongoing charges). Each P is rated with Positive, Neutral or Negative.
Based on the overall analysis, the analyst gives a positive (Gold, Silver or Bronze), neutral (Neutral) or negative rating (Negative). Mutual funds that are rated as Negative have a low score on one or more of the Ps. In the case of the Neutral rating, the Morningstar analysts believe that the fund will not make a negative or positive difference at the current time. Funds with the Gold, Silver or Bronze rating – ‘medalists’ – are expected to structurally achieve higher overall returns than similar funds and/or the benchmark in the long term – over an economic cycle. They are the winners of the future.
A mutual fund can also have the status Under Review. The Morningstar analysts put a fund Under Review when there is a major change in the fund or the fund house, for example if the fund manager has left. They then determine whether the change affects the investment philosophy and revise their rating if needed.
The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.
Please read this information carefully.
This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.
2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:
3. Local legal and sales restrictions
The information contained in the Website is being provided for information purposes.
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. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.
4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.
5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.
6. Third party websites
Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage.
7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.
8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.
10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong.