1. Attractive risk-return profile compared to high yield
SDG Credit Income has a track record of delivering high-yield-like returns in a bull market environment, and of producing lower drawdowns than a dedicated high yield strategy in a bear market environment.
The emphasis on higher-quality BB/BBB credits, investments in shorter-dated credits and tactical use of treasury exposure, have resulted in a better risk profile than high yield, while the large investment opportunity set has enabled the strategy to provide returns in line with the high yield market.
The strategy aims to deliver a USD yield of 4-6% through the cycle. The current portfolio yield still represents an attractive yield pickup compared to zero or negative-yielding cash or government bonds.
2. Exposure to best-in-class credit investments across investment grade, high yield and emerging markets, through the cycle
The strategy has access to the full spectrum of global credit opportunities. This is combined with tactical adjustments for each market phase, to underpin performance.
Robeco’s credit team has a very strong track record in investing in global high yield, global investment grade credit and emerging credit markets.
The SDG Credit Income strategy invests in the best-in-class credit ideas across global investment grade, high yield and emerging markets, based on superior bottom-up fundamental research and more than a decade of experience in identifying the best investment opportunities in global credit markets throughout the credit cycle.
3. Low volatility compared to high yield and emerging credit
Strategic and tactical management of portfolio risks ensures that the strategy has a low volatility profile – typically around 2-6% – compared to traditional high yield and emerging market investments.
Several factors contribute to the low volatility profile of the strategy. The portfolio is diversified across different markets and investment themes, which is an important tool for managing volatility. The portfolio construction also entails an emphasis on shorter-dated credit, which is less sensitive to market volatility than the longer-dated end of the market spectrum. Moreover, the tactical use of treasuries can be a very effective hedge against credit market volatility.
4. Sustainability screening lowers downside risk and enhances returns
Our proprietary sustainability screening process, which is based on the UN Sustainable Development Goals (SDGs), contributes to our ability to avoid poorly performing names. This has been a significant contributor to performance, particularly in times of market stress.
One of the mantras in our investment philosophy is ‘Winning by not losing’. In credit investing, avoiding poor performance is often more important than picking one high-performing name. We apply our proprietary SDG methodology to screen out companies that negatively impact the UN Sustainable Development Goals. The SDG screening process has been an important factor in our ability to avoid poorly performing names.