Multi-factor Credits peer group study: Ready? Steady? Go!

In our 2024 study we confirm once again that our multi-factor credits strategy is the only strategy in the peer group that has a negative outperformance correlation with its peers, and zoom in on the strategy’s steady performance delivery.

In a multi-manager credit context, the Robeco Global Multi-Factor Credits strategy (GMFC) has one of the lowest tracking errors in the peer group and offers the largest average tracking error reduction when combined with a fundamental credit manager. As a building block in a multi-asset context, the strategy has the lowest volatility and beta in its peer group, as well as the lowest correlation with equities. Therefore, when used in a 60/40 stocks/credits portfolio, it generates the asset mix with the lowest volatility.

The strategy’s steady performance delivery and its diversifying ability with both credit managers and equities, in combination with its strong sustainability profile and lower fees, give it a unique position among active and passive global credit strategies. This makes it an appealing offering for asset owners’ core credit allocations, diversifying with active managers and offering a smarter alternative to passive strategies.

Robeco’s Global Multi-Factor Credits strategy invests globally in predominantly investment grade credits and offers balanced exposure to the low-risk, quality, value, momentum, and size factors. It aims to outperform the global credit market by applying a systematic, risk-controlled investment process that constructs a well-diversified portfolio of bonds.

Our team of fundamental credit analysts complements the quantitative issuer selection by screening for tail risks beyond the scope of the model. The investment process systematically incorporates companies’ ESG and SDG scores and their environmental footprints of carbon emissions, water use, and waste disposal.

In this year’s study, we analyzed a peer group of 20 global credit managers over the live period of our Global Multi-Factor Credits strategy since August 2015. The peer group includes well-known asset managers such as BlueBay, HSBC, Invesco, JP Morgan, PIMCO, Russell, and Schroders. We downloaded the returns of their global credit funds from Morningstar Direct and as Morningstar reports net returns, we added back fees to approximate the gross returns, creating a level playing field.

Not only over the full sample period from August 2015 to July 2024, but also over more recent periods, such as over the last three years, GMFC has the lowest average outperformance correlation in the peer group.

The Robeco Global Multi-Factor Credits strategy stands out as an attractive choice for asset owners seeking a steady and predictable allocation to global credits. The strategy’s defensive style, characterized by the lowest volatility and beta among its peers, ensures stability in turbulent markets and the best diversification with equities.

Furthermore, the strategy’s systematic, risk-controlled investment process generates a market-like risk profile, a relatively low tracking error, and a steady outperformance. Our research shows that, combined with its negative correlation with fundamental credit managers, the Robeco Global Multi-Factor Credits strategy offers the largest tracking error reduction when combined with a fundamental manager.

The strategy's commitment to sustainability further enhances its appeal. By excluding harmful business practices and investing more in companies that, on average, have lower ESG risk, lower environmental footprints, and positive contributions to the SDGs, the Robeco Global Multi-Factor Credits strategy aligns financial performance with sustainable investment principles. The strategy's competitive fee structure underscores its attractiveness as an ideal core holding for asset owners' credit allocations.