Robeco Financial Institutions Bonds BH SGD
BH - SGD
0DH - EUR
0IH - EUR
BH - EUR
BH - USD
CH - USD
IH - CHF
M2H - USD
MH - USD
Diversified exposure to subordinated financial bonds
Disciplined and repeatable investment process
No active duration, nor FX exposure
Currency SGD
Robeco Financial Institutions Bonds is an actively managed fund that mainly invests in subordinated euro-denominated bonds issued by financial institutions. The selection of these bonds is based on fundamental analysis. The fund offers a diversified exposure to banks and insurance companies. Focus of the fund is in general towards higher rated issuers (investment grade).
Based on transaction prices, the fund's return was 2.85%. The index return for European subordinated financial debt was 2.2% in November. Credit spreads tightened by 57 basis points to 171 basis points, which means that the spread return of subordinated financial debt amounted to 2.5%. A small increase in underlying government bond yields contributed negatively to the market return. The portfolio return was higher than that of the index. The beta overweight position of approx. 1.3 contributed positively, as spreads tightened. The contribution of issuer selection was positive too. The overweight in Spanish banks contributed positively following the news around BBVA and Sabadell, as these instruments underperformed on a risk-adjusted basis. Individual positions that contributed most to performance were Sabadell, LeasePlan, CaixaBank and Axa.
November was a very eventful month that started with the US elections. The result of the elections is that the US will inaugurate a new president in January, but whether economic and fiscal policy will change dramatically remains to be seen. The announcement by Pfizer that its vaccine is more successful than expected, had a much bigger impact on capital markets. Sentiment clearly changed into risk-on, with strong performance of equity and corporate bond markets. Subordinated debt of banks and insurance companies rallied too in this environment. BBVA announced the sale of its US business for USD 11.6 billion, which will lead to a significant improvement in the bank's capital ratio. A few days later, the bank announced a takeover bid for the smaller Spanish bank Sabadell. Bonds of BBVA and Sabadell rallied after these two events. In the end the bid for Sabadell failed, which led to a reversal of part of the earlier gains for Sabadell's bonds. Brexit headlines did not have much impact on the development of spreads in November. Spreads of for instance Irish banks underperformed in the first two weeks of the month, but outperformed in the second half.
Robeco Financial Institutions Bonds fund make use of derivatives for hedging purposes as well as for investment purposes. These derivatives are very liquid.
The fund aims to pay a quarterly dividend.
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.
A lot has changed since we increased the overweight position of the fund in March. Spreads have tightened significantly, but the current index spread is still higher than the long-term average. The economic environment is tough and credit losses for banks will rise, even though we know that short-term economic indicators show the situation is improving. Why are we willing to run an overweight position then? First of all, because if we look forward we expect that the economic situation will improve further. And we are aware that credit losses will be high, but our stress tests have demonstrated that banks are able to deal with that. In addition, both central banks and governments have continuously overdelivered when they announced measures to support economies. We think that the banking sector will benefit from all this support, as governments are aware that banks are part of the solution this time, not part of the problem. Market liquidity has improved and money is flowing into the credits asset class again. It seems clear that we will remain in a low yield environment for a while, which means that investors will look for parts of the market that still offer an interesting yield.
Jan Willem de Moor
Mr. de Moor is a Senior Portfolio Manager and a member of the Credit team. Prior to joining Robeco in 2005, Mr. de Moor was employed by SBA Artsenpensioenfondsen as Senior Portfolio Manager Equities for six years. Before that, he worked at SNS Asset Management holding positions of Portfolio Manager Equities (three years) and Research Analyst (two years). Jan Willem de Moor started his career in the Investment Industry in 1994. He holds a Master's degree in Economics from Tilburg University.
The Robeco Financial Institutions Bonds fund is managed within Robeco's credit team, which consists of nine portfolio managers and twenty-three credit analysts (of which four financials analysts). The portfolio managers are responsible for the construction and management of the credit portfolios, whereas the analysts cover the team's fundamental research. Our analysts have long term experience in their respective sectors which they cover globally. Each analyst covers both investment grade and high yield, providing them an information advantage and benefiting from inefficiencies that traditionally exist between the two segmented markets. Furthermore, the credit team is supported by dedicated quantitative researchers and fixed income traders. On average, the members of the credit team have an experience in the asset management industry of seventeen years, of which eight years with Robeco.
Bloomberg ROFIBBH LX
European banks face an earnings event, not a capital event
Investment Grade Credits Financials
Banking and insurance sector investment case supported by improving capital ratios.