united kingdomen
Active duration management shines as bond markets jitter

Active duration management shines as bond markets jitter

05-03-2019 | Insight
Robeco’s Dynamic Duration strategies lived up to their promise in 2018. They offered protection against rising yields as the year got underway but also benefitted from the government bond rally as it came to an end.
  • Olaf  Penninga
    Portfolio Manager

Speed read

  • Active duration management played a crucial role in 2018
  • Robeco’s Dynamic Duration funds performed strongly
  • New enhanced trend variable for our duration model

Government bond markets experienced sharp moves in 2018. As a result, investors could add value through bond market timing, gaining protection from rising yields and benefiting from declining ones. In this context, the positioning of our Dynamic Duration funds was indeed truly dynamic.

Active duration management once again proved to be an effective way to avoid human biases and benefit from out-of-consensus positions. Systematically sticking to proven bond market drivers without any bias allowed the fund to embrace government bonds and take a maximum overweight in the last months of the year. With strong returns in this difficult period for risky assets, the two funds delivered valuable diversification just when investors needed it most.

Last year, the Robeco QI Global Dynamic Duration and QI Long/Short Dynamic Duration generated positive total returns of 1.7% and 1.6% respectively, gross of fees, significantly outperforming their respective benchmarks.1

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates

Proven duration model

The duration positions taken in the Dynamic Duration funds are based on the outcome of our duration model. This model was developed in the early 1990s and uses six variables to forecast the direction of bond yield movements: three fundamental variables relating to macroeconomic drivers of bond markets such as economic growth, inflation and monetary policy; one valuation variable to assess to what extent these expectations are already discounted in bond prices and two technical variables (trend and season) to improve the timing of the model.

Four out of the six variables contributed to the strong relative performance in 2018, while the other two made a neutral contribution. The economic growth and inflation variables contributed positively, as they signaled both the rise in yields at the start of the year and the bond market rally at the end. The inflation variable gave up part of its performance in the Italian turmoil, while the growth variable had a weaker period in the summer. The monetary policy and valuation variables contributed quite consistently for most of the year by signaling that US bonds would underperform. The trend variable and the seasonal variable detracted from performance in the first part of the year but recovered in the rally in the last months of the year.

The enhanced trend variable would have generated a slightly better result over the full research period

Improved trend variable

As part of our continuous efforts to optimize the duration model, our researchers recently analyzed its trend variable. The trend variable is combined with a seasonal variable to optimize timing in the model. Specifically, our researchers analyzed the consequences of replacing the existing trend variable with a somewhat ‘longer-term’ one. They also looked at ways to improve the variable design to avoid short-term mean-reversion effects.

They found that the enhanced trend variable would have generated a slightly better result over the full research period, due to better performance in the last two decades. Meanwhile, the turnover of the strategy would have been consistently lower during the research period, thanks to this ‘longer-term’ trend variable, in particular in the ten years from 2008 to 2018. As a result, Robeco recently decided to enhance its duration model with this new trend variable.

1 Source: Robeco Performance Measurement. All figures in EUR, DH share, gross of fees. In reality costs (such as management fees and other costs) are charged. These have a negative effect on the returns shown. Past results are no guarantee for the future.

Subjects related to this article are:


Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.

The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. 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.

In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.

In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.

Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.

If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.

If you do not accept these terms and conditions, as well as the terms of use of the website, please do not continue to use or access any pages on this website.

I Disagree