HEAD-TO-HEAD: Pimco vs Robeco

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Robeco’s yield-to-worst, or the lowest yield to maturity in case a bond is callable earlier than its maturity, stands at 4.8% as of the end of June. Pimco’s yield-to-worst figure was unavailable, but the fund’s factsheet shows an estimated yield to maturity of 5.07%.

Due to the conservative strategy of both funds, they tend to have lower downside risks and better sharpe ratios compared to peers in the global high yield bond category. However, they may lag in performance during risk-on market rallies among lower-rated issuance, he said.

For instance, the Robeco fund “has been positioned defensively compared to the benchmark for a very long time. At the end of July 2016, the fund was overweight in bonds with a credit rating of BBB, whereas B- and CCC-rated bonds were underweighted.”

The two funds managed to avoid the energy sector during 2015 when the industry had a surge in defaults amid low oil prices, he added. Both funds were among the top quartile performers in 2015 as a result.

“The Robeco fund also performed very well in 2016, which was a year of [energy sector] recovery and CCC-rated bonds within the energy and material sectors saw a strong comeback – but both the Pimco and Robeco funds did not position a lot in these areas.”

The outperformance was due to the positions made around Brexit. “The market was too complacent so the team bought more protection for the fund and reduced the credit risks,” he explained.

Thus the three-year performance of Robeco beat that of the Pimco product and also outperformed FE’s global high yield sector. According to the fund factsheet, Robeco’s product also beat its benchmark over the same period.

On a rolling five-year basis, the Robeco fund outperformed the Pimco product by returning an annualised 7.6%, versus Pimco’s 6%, according to Morningstar data.

It’s relatively difficult for high yield bond funds to beat the benchmark, Faassen said. They tend to have wider spreads and lower liquidity than traditional fixed income, incurring high transaction costs that can erode the total return.

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