HEAD-TO-HEAD: Bluebay vs Robeco

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The small difference in the duration between the two funds is not significant when comparing their performance, according to Dhoosche. “What will make a major difference between them is country selection,” he said.

The Bluebay fund has outperformed its benchmark by a substantial amount on a three-year and one-year basis.

“The fund started its strong outperformance in June 2016, and more precisely on Brexit day”thanks to a large overweight in German bunds and the peripheral countries, combined with a short position in US bonds, achieved via derivatives, Dhoosche noted. Other contributors included long positions in specific emerging market countries, as well as a short position in sterling, leading into the Brexit vote.

“One of their big plays was Iceland,” Dhoosche said. The Bluebay fund held Icelandic bonds issued under additional protection of UK laws. It benefitted both from  the tightening of the spreads of the Icelandic bonds and the appreciation of the Icelandic krona in 2017.

“Since Brexit day, the fund outperformed the benchmark by close to 7%, which is remarkable,” Dhoosche said.

The Robeco fund significantly underperformed the benchmark on a three-year basis, although it did slightly better than the index on a one-year basis.

One of the reasons, according to Dhoosche, is the fund’s overweight to negative-yielding German bonds. The other is the relative size of the active bets.

“They have a lot of winners in their portfolio, trades that have worked well, nevertheless the size of these trades is not large enough to make a significant impact,” he said.

“The underperformance of the fund is, of course, disappointing, knowing that they have strong fundamental research capabilities as well as solid quantitative models,” Dhoosche said. “The investment process is probably not encapsulating enough market sentiment,” he added. He said that the impact of the ECB’s has “clearly distorted the traditional impact of fundamental factors on valuations”.

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