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2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms. If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act 2001 (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore. The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction. It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights. You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos. You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video. Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website. You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason. The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.

Disclaimers
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

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Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.

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Balancing value and risk through active management

We seek to build a portfolio that is sufficiently diversified to minimize the impact of negative credit events and concentrated enough to benefit from active management. To do this we screen global credit markets across various credit classes for overlooked value due to biases ad segmentations. Often, value opportunities can be found in shorter-dated bonds with attractive valuations relative to other corporate bonds, and history shows that these valuation premiums tend to mean revert.

We apply three main principles to effectively manage and control risks:

Diversification: By spreading investments across different issuers, we reduce concentration risk. For example, if the issuing company faces financial distress, bondholders may not receive the full repayment. By creating diversified portfolios investors can limit the impact of credit risks on performance. Consequently, our portfolios are typically diversified across more than 100 different issuers.
Issuer limits: Imposing strict line limits, such as absolute or relative concentration limits based on ratings, protects investors when strategies and/or mandates grow in size. Selling a large amount in an AA-rated corporate is easier than selling the same amount in a lower-rated credit. Liquidity becomes especially relevant when investing in lower-quality credits as the probability of defaults increases disproportionately.
Duration Times Spread (DTS)¹: Fundamental bottom-up credit research is important to understand relevant credit risks and avoid the value trap of buying credit that is cheap due to a higher risk of default. Investors should understand how volatility in credit spreads impacts performance, and how a credit portfolio can be constructed to reduce volatility.

Rewarded risks

It is important for investors to distinguish between rewarded and unrewarded risk factors. In our view, rewarded risks are those harvested by taking a contrarian approach, founded on rigorous research. If we believe the F-score² for an issuer indicates a fundamental improvement overlooked by the market because of recession fears, bad earnings cycles or a slow ratings agency, we perceive this as rewarded risk.

Moreover, subordination risk can also be rewarded. Solid companies with sound fundamentals can issue different types of debt instruments – such as senior, subordinated, first-lien or second-lien debt or payment-in-kind notes. Senior and subordinated debt have the same probability of default, and if an issuer’s default probability is extremely low, it can be beneficial to invest in its subordinated debt. This is particularly true when spreads widen, offering investors attractive entry points.

Unrewarded risks

There are a handful of unrewarded risks, such as idiosyncratic risks, that are more prevalent in certain market segments, including real estate, retail, and leisure. Historically, defaults have been clustered in these industries, however, they remain viable for investment with due caution.

Moving too low in the capital structure can also be unrewarding. Highly indebted companies could face challenges in paying coupons and servicing debt obligations, and weak governance is disadvantageous as it can expose credit investors to material downside risk. Sustainable risks can also be detrimental. For instance, polluting companies are bound to face regulatory pressures as the transition to a low-carbon economy gathers pace.

To manage risks, we primarily focus on market and credit risk for which we believe investors are compensated. To measure and monitor the inherent credit risk in our portfolios we use a proprietary risk management system. This allows our portfolio managers and risk management department to keep an eye on market, sector and company-specific risk. For each of these factors, the risk exposure depends on the weight, spread and duration of individual investments, the product of which translates into an amount of risk points. Whenever the portfolio manager allocates risk to a portfolio holding, the conviction level is expressed by the number of risk points.

Footnotes

¹ Read more about how we use DTS to measure credit volatility.
²The Piotroski F-Score is a financial tool developed by Joseph Piotroski that assesses a company's financial strength based on nine criteria covering profitability, leverage, liquidity, and operating efficiency. Scores range from 0 to 9, with higher scores indicating better financial health.