A decade of live track-records shows that our factor-based credit investing approach delivers improved risk-adjusted returns compared to the market. Here’s our story. Speed read Ten-year live track record shows strength of factor credits strategies Systematic approach enables style diversification and more sustainability Multi-factor credit selection performed well across market environments
Evidence from our ten years of live factor-based credit investing, combined with more than twenty years of research and innovation in this field, shows that our approach provides improved risk-adjusted returns relative to the market, performance resilience, style diversification and greater levels of sustainability compared to passive and fundamentally managed credit portfolios.
Our first standalone factor credit portfolio was launched a decade ago, in 2012. Today, Robeco's factor credits capability oversees nearly EUR 5 billion in assets under management, across 15 live portfolios.
A history of research and innovation
Robeco has been actively researching the existence of factors in credit markets since the late 1990s. With the growth in European credit markets at the time, it was a natural step to investigate the efficacy of equity factors like value and momentum in credits, too. The research resulted in an academic publication in The Journal of Portfolio Management in 2001 titled "Successful Factors to Select Outperforming Corporate Bonds".
A number of academic contributions followed in the subsequent period and then, in 2017, we published a ground-breaking paper which was the first to document how portfolio managers can successfully implement a multi-factor approach in their credit portfolios. 1
Initially, factor-based credit selection models were used as idea generator for Robeco's fundamental credit mandates. This changed in 2012, when we won the first external mandate for factor credits. The mandate was from an insurer, to build a conservative multi-factor portfolio that reduces the credit volatility while maintaining market-like returns.
The introduction of our first multi-factor credits fund in 2015 and our first high yield-focused multi-factor fund in 2018 were further milestones, followed in 2019 by a mandate to apply factor credits to both investment grade and high yield in one portfolio. This year we launched a sustainable version of the multi-factor credits flagship fund, which contributes to the Sustainable Development Goals (SDGs) and is aligned with the Paris Agreement.
Tracking the live performances of our factor credit strategies
Our factor-based credit portfolios have provided superior risk-adjusted returns compared to the market. Importantly, our live portfolios have achieved results similar to those in the original empirical research, pointing to the robustness of our research as well the execution in live portfolios.
Find the full article with graphs here.
Demonstrated style diversification
The live track-records of the various factor-based credit strategies show a further important benefit: low correlations with traditional actively managed credit portfolios. A peer group study (conducted in 2021) that analyzed the live period of Robeco QI Global Multi-Factor Credits found that its relative returns have a -23% correlation, on average, with the relative returns of fundamental global credit managers.
1Blitz, D.C., May 2021, "The Quant Crisis of 2018:2020: Cornered by Big Growth", Journal of Portfolio Management.
This post is funded by Robeco
1 Houweling, Van Zundert, 2017, "Factor Investing in the Corporate Bond Market", Financial Analysts Journal, Vol. 73, No. 2, pp. 100-115