Robeco Financial Institutions Bonds IH EUR

May started off cautiously, but sentiment changed to positive around the middle of the month, as it became clear that (most) European leaders were in agreement on a EUR 750 billion recovery fund. At the time of writing, this fund is not a done deal just yet, but market stress in the southern part of Europe has already been alleviated. Other factors that played a role in the rally were the gradual reopening of more and more economies and speculation about even more monetary stimulus by the ECB. This speculation turned out to be right; in June, the ECB announced expansion of the PEPP bond-buying program by EUR 600 billion. Now that governments and central banks have again stepped up their efforts to support economies, more and more credits are starting to recover from their wide spreads. Examples of individual names that have lagged the initial rally in April but have now started to tighten, are LeasePlan and Banco Sabadell. Fund flows are still very positive, and banks and insurance companies are using this new market strength to bring new bonds to the market. We participated in several new deals, such as those of Direct Line, Bank of Nova Scotia and Aviva.

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.