In this Research Note we show that low-risk credits had superior risk-adjusted excess returns over the past 20 years. By selecting low-risk bonds from low-risk issuers, investors would have earned credit-like returns at substantially lower risk. This low-risk anomaly strongly resembles the lowrisk anomaly in equity markets that was documented in earlier Robeco research and forms the basis of the Robeco Conservative Equity product line.
We present our research on the low-risk anomaly in credit markets using various dimensions of risk. We also provide explanations why we believe that the anomaly is likely to persist in the future. We conclude with a brief description of the Robeco Conservative Credits strategy, which exploits the low-risk anomaly by investing in bonds with a below-average maturity from issuers with below-average risk. This category of credits should appeal to longterm investors that want to realize superior risk-adjusted excess returns through the cycle.