A decade of live track-records shows that our factor-based credit investing approach delivers improved risk-adjusted returns compared to the market. Here’s our story.
Evidence from our ten years of live factor-based credit investing, combined with more than twenty years of research and innovation in this field, shows that our approach provides improved risk-adjusted returns relative to the market, performance resilience, style diversification and greater levels of sustainability compared to passive and fundamentally managed credit portfolios.
Our first standalone factor credit portfolio was launched a decade ago, in 2012. Today, Robeco’s factor credits capability oversees nearly EUR 5 billion in assets under management, across 15 live portfolios.
Robeco has been actively researching the existence of factors in credit markets since the late 1990s. With the growth in European credit markets at the time, it was a natural step to investigate the efficacy of equity factors like value and momentum in credits, too. The research resulted in an academic publication in The Journal of Portfolio Management in 2001 titled “Successful Factors to Select Outperforming Corporate Bonds”.
A number of academic contributions followed in the subsequent period and then, in 2017, we published a ground-breaking paper which was the first to document how portfolio managers can successfully implement a multi-factor approach in their credit portfolios.1
Initially, factor-based credit selection models were used as idea generator for Robeco’s fundamental credit mandates. This changed in 2012, when we won the first external mandate for factor credits. The mandate was from an insurer, to build a conservative multi-factor portfolio that reduces the credit volatility while maintaining market-like returns.
The introduction of our first multi-factor credits strategy in 2015 and our first high yield-focused multi-factor strategy in 2018 were further milestones, followed in 2019 by a mandate to apply factor credits to both investment grade and high yield in one portfolio. This year we launched a sustainable version of the multi-factor credits flagship strategy, which contributes to the Sustainable Development Goals (SDGs) and is aligned with the Paris Agreement.
Our factor-based credit portfolios have provided superior risk-adjusted returns compared to the market. Importantly, our live portfolios have achieved results similar to those in the original empirical research, pointing to the robustness of our research as well the execution in live portfolios.
Performances until the end of April 2022. The currency in which the past performance is displayed may differ from the currency of your country of residence. Due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. The value of your investments may fluctuate. Past performance is no guarantee of future results. Returns are gross of fees, based on gross asset value. All figures in EUR. In reality, costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown. Robeco Conservative Credits is based on a Robeco Euro Conservative Representative Mandate and benchmarked against the risk-adjusted Bloomberg Euro Aggregate Corporates index. Robeco Global Multi-Factor Credits is based on Robeco QI Global Multi-Factor Credits IH EUR share and benchmarked against the Bloomberg Global Aggregate Corporates index (hedged to EUR). Robeco Global Multi-Factor High Yield is based on Robeco QI Global Multi-Factor High Yield IH EUR share and benchmarked against the Bloomberg Global High Yield Corporates ex Financials index (hedged to EUR). Robeco Global Multi-Factor All Grades is based on a representative mandate and benchmarked against a Custom Bloomberg Global Credit incl HY benchmark (hedged to EUR). The inception dates for each strategy are shown in Table 1.
The live track-records of the various factor-based credit strategies show a further important benefit: low correlations with traditional actively managed credit portfolios. A peer group study (conducted in 2021) that analyzed the live period of Robeco QI Global Multi-Factor Credits found that its relative returns have a -23% correlation, on average, with the relative returns of fundamental global credit managers.
This means that incorporating a factor-based credit strategy into a multi-manager pool of fundamentally managed portfolios adds valuable diversification benefits. See our article “Multi-Factor Credits: Continued style diversification after Covid-19 crisis” for more information.
The systematic nature of factor credit portfolios means they lend themselves well to sustainability integration. And, indeed, sustainability has been a key consideration in our factor credit strategies since inception, and our approach has continued to evolve over time.
Credit analysts have assessed ESG risks in our factor-based credit portfolios since these strategies were launched in 2012, as part of human oversight of the systematic investment process. In 2013, we started supporting client-based exclusion lists, and have been applying Robeco’s Sustainability Inside exclusion list since 2015.
A further step was taken in 2016, with the decision to ensure that the average ESG scores of our strategies are better than those of the benchmarks. Carbon emission constraints were introduced to the portfolios in 2020. Similar constraints on water use and waste generation have been applied since 2021.
There is a growing body of research on factor investing in credit markets, from academia, brokers and index providers, while new competitors are entering the market. These developments are similar to what we saw in equity markets several years ago and augur well for a proliferation of factor investing in credit markets.
We believe the ability of factor-based credit portfolios to integrate multiple sustainability dimensions at the same time will further accelerate the adoption of systematic, factor-based portfolios.
Our aim is to maintain our leading position with a continued focus on research, innovation and sustainability. We will continuously look for ways to improve existing factors and explore new types of data sources and techniques, including natural language processing and machine learning. The launch of the new RobecoSAM QI Global SDG & Climate Multi-Factor Credits is testimony to our desire to stay ahead by introducing innovative strategies that contribute to a more sustainable future and at the same time deliver attractive risk-adjusted returns for our clients.
1 Houweling, Van Zundert, 2017, “Factor Investing in the Corporate Bond Market”, Financial Analysts Journal, Vol. 73, No. 2, pp. 100-115.
2 As a result of the lower risk of Conservative Credits compared to its benchmark, the strategy usually outperforms in bearish credit markets and underperforms in bullish credit markets. To neutralize this effect, we use a risk-adjusted benchmark for performance analysis. This risk-adjusted benchmark has the same degree of interest rate risk and credit risk as the portfolio.
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. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. 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
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. 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. Third party off-site pages or websites are provided for informational purposes only.
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.