Lukas Strobl: I’m here today with Morningstar manager research analyst Elbie Louw, who has just initiated coverage of the RobecoSAM Global SDG Credit strategy– that is a bond fund with a sustainability overlay based on the UN’s Sustainable Development Goals. This fund earns a Morningstar Medalist Rating of Silver for its cheapest share class.
Elbie, what does this fund invest in and what does the sustainability overlay mean?
Elbie Louw: Thank you, Lukas. This strategy invests in global credits and it is benchmarked against the Bloomberg Global Aggregate Corporate Index. However, it can also take some limited off-benchmark exposure in high yield credits. It’s mostly in BB bonds in emerging market corporates as well as asset-backed securities. Within the strategy, the banking sector continues to be a favorite hunting ground for the team. And as to the sustainability overlay, which is quite the differentiating factor here, the team is limited to only invest in issuers that make a neutral or a positive contribution to the UN Sustainable Development Goals as it is assessed by Robeco’s proprietary framework. The implication of this is that the investable universe on average reduces by roughly 20% to 25% for the strategy.
Strobl: Now, the Process Pillar of this fund’s Morningstar Medalist Rating is ‘above average’. What can you tell us about the process? How does this team manage the fund?
Louw: Yes, this strategy continues to benefit from the robust investment process that Robeco applies to all of the fixed income strategies, which is focused on top-down credit beta market positioning as well as fundamentally bottom-up security selection. However, what is different here is because of the sustainability overlay, whenever the team wants to increase the credit beta market risk of the strategy, they have to use single-issuer credit default swaps and they cannot use index-linked credit default swaps because of the fact that they may get exposure to issuers that do not meet the sustainability criteria.
Strobl: Another key pillar, of course, to the Morningstar Medalist Rating is ‘People’. What can you tell us about the team managing this fund?
Louw: As with regards to People Pillar this strategy earns a ‘high’ score for its People Pillar, and it benefits from the experience of Victor Verberk as well as Reinout Schapers, who also leads the sister strategy Robeco Global Credits. With regards to Verberk, he has been CIO of Fixed Income and Sustainability since 2020 at the firm, while Reinout Schapers leads the emerging market strategies as well as other sustainability strategies. Both of the managers have more than two decades investment experience and have been with Robeco for more than 10 years. In addition, they are backed by a team of investment grade portfolio managers that have grown from 5 to 8 in the past six years, which definitely alleviate some of the responsibility on key portfolio managers. They also have 23 credit analysts that boast an average of 18 years experience, and also 18 sustainability analysts that contribute to the strategy.
Strobl: Now this sustainability overlay will probably be unfamiliar to many. What has it meant for the fund’s performance so far?
Louw: So, although the strategy may have more downside participation or more downside risk compared to the index because of the off-benchmark fee that it can invest in, the sustainability overlay does temper this somewhat. And if you look at the performance of this strategy, it has an inception of May 2018 and if you look at roughly the past five years, this strategy has bested 75% on an absolute and risk-adjusted performance basis for all of the peers within the Morningstar Global Corporate European Hedged Category, which makes it a very viable option for someone that wants to get global credit exposure as well as a sustainability overlay.
Strobl: So, there are good reasons to factor ESG into bond investing beyond just a clean conscience. Thank you for telling us about this fund Elbie. For Morningstar, I’m Lukas Strobl.
