latamen
70 years of evidence on our dynamic duration model

70 years of evidence on our dynamic duration model

02-03-2021 | Insight
Using a new, deep historical dataset, we show that our duration model works well over seven decades. The research also confirms that model performance can be volatile. The implication is that patience is needed to reap the full benefits of the model, also through weaker periods.
  • Olaf  Penninga
    Olaf
    Penninga
    Portfolio Manager
  • Guido  Baltussen
    Guido
    Baltussen
    Head of Factor Investing
  • Martin Martens
    Martin
    Martens
    Researcher

Speed read

  • A 70-year backtest of our duration model is now possible
  • The results confirm the robustness of the model, including in times of rising yields
  • Model typically adds most value when bond yields move most, including recessions

We used a deep historical dataset that was recently made available to backtest the duration model used for the duration positioning of Robeco’s Global Dynamic Duration strategy. This backtest demonstrates that our model works well over 70 years of data. The model has generated 0.7% annualized alpha in the 23 years of live trading, and it performed well in the original backtest. Together, these two periods are marked by the secular decline in yields

This longer backtest shows that the model worked equally well in the 1950s, 1960s and 1970s, when yields were predominantly in a rising trend. The model has typically added most value in periods when bond yields moved most, including recessions and weak periods for risky assets like equities.

Although the model performs well on average, and the positive returns are on average larger than the negative returns, the long backtest also confirms that model performance can be volatile. Around 15% of the annual performances are below -2%, and even over 3-year periods the model performance can be negative. 

The model’s average outperformance and especially the performance when markets move most – both when yields rise and when they fall strongly – makes the Global Dynamic Duration strategy valuable in a portfolio context. But strong hands are a requirement. In order to reap its full benefits, investors need to hold on to the strategy also through weaker periods.

Stay informed on Credit investing with monthly mail updates
Stay informed on Credit investing with monthly mail updates
Subscribe

Download the white paper with the detailed research findings

Disclaimer

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.

Logo

Important information

The Robeco Capital Growth Funds have not been registered under the United States Investment Company Act of 1940, as amended, nor or the United States Securities Act of 1933, as amended. None of the shares may be offered or sold, directly or indirectly in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act of 1933, as amended (the “Securities Act”)). Furthermore, Robeco Institutional Asset Management B.V. (Robeco) does not provide investment advisory services, or hold itself out as providing investment advisory services, in the United States or to any U.S. Person (within the meaning of Regulation S promulgated under the Securities Act).

This website is intended for use only by non-U.S. Persons outside of the United States (within the meaning of Regulation S promulgated under the Securities Act who are professional investors, or professional fiduciaries representing such non-U.S. Person investors. By clicking “I Agree” on our website disclaimer and accessing the information on this website, including any subdomain thereof, you are certifying and agreeing to the following: (i) you have read, understood and agree to this disclaimer, (ii) you have informed yourself of any applicable legal restrictions and represent that by accessing the information contained on this website, you are not in violation of, and will not be causing Robeco or any of its affiliated entities or issuers to violate, any applicable laws and, as a result, you are legally authorized to access such information on behalf of yourself and any underlying investment advisory client, (iii) you understand and acknowledge that certain information presented herein relates to securities that have not been registered under the Securities Act, and may be offered or sold only outside the United States and only to, or for the account or benefit of, non-U.S. Persons (within the meaning of Regulation S under the Securities Act), (iv) you are, or are a discretionary investment adviser representing, a non-U.S. Person (within the meaning of Regulation S under the Securities Act) located outside of the United States and (v) you are, or are a discretionary investment adviser representing, a professional non-retail investor. Access to this website has been limited so that it shall not constitute directed selling efforts (as defined in Regulation S under the Securities Act) in the United States and so that it shall not be deemed to constitute Robeco holding itself out generally to the public in the U.S. as an investment adviser. Nothing contained herein constitutes an offer to sell securities or solicitation of an offer to purchase any securities in any jurisdiction. We reserve the right to deny access to any visitor, including, but not limited to, those visitors with IP addresses residing in the United States.

This website has been carefully prepared by Robeco. The information contained in this publication is based upon sources of information believed to be reliable. Robeco is not answerable for the accuracy or completeness of the facts, opinions, expectations and results referred to therein. Whilst every care has been taken in the preparation of this website, we do not accept any responsibility for damage of any kind resulting from incorrect or incomplete information. This website is subject to change without notice. The value of the investments may fluctuate. Past performance is no guarantee of future results. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency. For investment professional use only. Not for use by the general public.

I Disagree