HEAD-TO-HEAD: Bluebay vs Robeco

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Both funds invest in European government euro-denominated bonds. However, while the Robeco fund restricts its universe to the Eurozone, the Bluebay fund has latitude to invest up to 15% of its assets in non-investment grade and off-benchmark bonds, which include emerging Europe, other emerging markets and the US. It can also invest in bonds denominated in other currencies. The Bluebay fund’s net foreign currency exposure on 28 February amounted to around 3.4% of its assets.

Both funds are benchmarked to the Barclays Euro Aggregate Treasury Index.

The Bluebay fund seeks to outperform it by 150 basis points, expecting the ex-ante tracking error of 300bp.

(The ex-ante tracking error is a projection of future deviation of a fund’s returns from the benchmark, calculated using risk models. It measures the level of active risk assumed by the fund manager).

The Robeco fund is more conservative, aiming for only 50-75bp of excess return over the benchmark, while willing to take on 150bp of tracking error.

The Bluebay fund is a “high conviction, medium-tracking error strategy that is driven by top-down macro views and relative value opportunities,” Dhoosche said. It uses derivatives to implement tactical views and fine-tune macro exposures to interest rate duration, spread duration, yield curve and currencies.

(Interest rate duration measures the sensitivity of a bond or portfolio to broad interest rate movements, while spread duration measures the sensitivity to spread tightening or widening while interest rates remain fixed).

The Robeco fund, with a more restrictive mandate, “aims to grasp the opportunities that arise as the result of divergences between countries”, Dhoosche said. The focus on country fundamentals is intended to allow the fund to benefit “when markets are swayed away from fundamentals by emotions”, he added.

Both funds invested in the negative-yielding German government bonds, albeit for different reasons, according to Dhoosche. The Bluebay fund, whose managers are more tactical, played the monetary policy divergence between the US and Europe.

In particular, Dhoosche noted that in 2017 they shorted near-term US bonds using bond futures and at the same time they were holding a long position in near-term German bonds in expectation that the ECB will continue buying bonds.

“That worked extremely well for them,” he said.

The “much more strategic in nature” Robeco fund, according to Dhoosche, will invest in negative interest trades in order to maintain a low tracking error, even though the fund manager doesn’t like negative interest trades.

In fact, the Robeco fund is overweight Germany, whose bonds constitute 29.8% of its assets, a 13.3% overweight, according to the fund’s fact sheet. Dhoosche said it was because the manager believed that the ECB’s quantitative easing has been highly beneficial to peripheral countries such as Italy, Spain and Portugal and its expected tapering should swing the pendulum the other way to benefit Germany (while ending QE would depress all bond prices, the periphery would sell off more than Germany would, he explained).

The interest rate duration of the Bluebay fund, at 7.86 years at the end of February, is slightly higher than that of the benchmark (7.7 years), according to the fund’s fact sheet, making the fund more sensitive to changes in interest rates. Similarly, the spread duration, at 7.02 years, is higher than that of the benchmark (6.21 years), making it more sensitive to tightening and widening of bond spreads.

The fund holds 64 positions, less than a fifth of the number of bonds in the benchmark index, making it a high conviction portfolio.

The duration of the Robeco fund, at 7.7 years, matches that of the benchmark exactly, according to the fund’s fact sheet. The fund held 87 positions at the end of February, according to Morningstar.

The Robeco fund integrates ESG (environmental, social and corporate governance) issues into its investment process, through country sustainability rankings, which play a role in determining country allocations.

Bluebay fund materials do not mention ESG.

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