Multi-asset market outlook - Navigating the two-way risk in equities April 2020 - Robeco
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Multi-asset market outlook
Navigating the two-way risk in equities
April 2020
For professional investors
Special Topic Economy Equities Fixed Income Commodities & FX
General overview (I)
March: very few places to hide
> March 2020 is a month that will not quickly be forgotten by investors. Not only
did equity markets suffer substantial losses, the speed at which they dropped
was unprecedented. The last time we witnessed such a fast pace of value
destruction was in 1929. The VIX index, a measure that reflects the uncertainty
of the equity markets, reached 84 – almost four times the ‘normal’ value.
> The downturn was not limited to equity markets: few assets were able to deliver
a positive return this month. It should not come as a surprise that gold and
government bond markets – often seen as the ultimate safe-haven assets –
were amongst the best-performing asset classes.
> The coronavirus outbreak continues to spread globally. What the cumulative
Source: Bloomberg, Robeco
impact of the outbreak will be, and the subsequent measures taken to contain
Positions: slowly tilting towards credits it, remain uncertain. In China, the outbreak seems to be contained, but this is
not the case yet in Europe and the US. The good news is that globally, central
banks and governments have acted swiftly to provide support. What the shape
of the recovery ( V-, U- or L-shaped) will eventually be is uncertain.
> We have been relatively active in the portfolio this month. Our long-term
underweight to high yield bonds has paid off massively. Also, our preference for
US government bonds and our overweight to government bonds generally
attributed positively to our performance. Equity allocations contributed
negatively (albeit modestly), resulting in a positive net asset allocation result.
Currently, we are cautiously adding corporate debt to the portfolio.
Source: Robeco
2
Special Topic Economy Equities Fixed Income Commodities & FX
Theme of the month
Navigating the two-way risk in equities (I)
Dow Jones day returns in excess of 10% since 1900
> The fastest slide of equities into bear market territory since 1929 evidences the
unprecedented uncertainty surrounding the external shock to the global economy
posed by the coronavirus. This has been aggravated by the sudden change of tack by
OPEC+ in the oil market. Wild swings in equity prices signal that investors have to
navigate two-way risk. Investors realize that we are not on the verge of a ‘classic’
recession. And will the ensuing recovery be V-, U- or L-shaped? Nobody really
knows.
> Yet, as investors we are not rewarded for waiting until the dust has settled, and the
macroeconomic view is all clear. In confusing times like these, market technicals
trump fundamentals in market pricing behavior. With major equity indices down
Source: Dow Jones, Robeco more than 25% from the recent highs, the natural question is: how much downside
in indices is left from a technical point of view?
Implied recession probability by asset class
> Hopes of a bottoming out have risen recently. March 24 showed a record daily
80
bounce of 11.45% in the Dow Jones Industrial Average in anticipation of a USD 2
60
trillion stimulus package from the US Congress. However, a bounce of this size is not
40
necessarily good news when put into a historical perspective. The first >10% bounce
20
in the 1931, 1987 and 2008 bear markets was still followed by another wave of
0
selling before the final trough emerged. From a sentiment angle, recent exceptional
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bounces suggest that investor sentiment is still in the denial phase, rather than in the
phase of capitulation that paves the way for a new bull market.
Sanders Biden Warren
Bloomberg Buttigieg Klobuchar
Source: Robeco, Bloomberg
3
Special Topic Economy Equities Fixed Income Commodities & FX
Theme of the month
Navigating the two-way risk in equities (II)
Peak-to-trough S&P 500 around NBER recessions
> Zooming in on equities, the average recessionary bear market for US equities has
seen a peak-to-trough of -22.1%, while the average non-recessionary bear market
has shown a -19.8% decline. At this stage, we are obviously in a recessionary bear
market. The 27% slide in the S&P 500 Index since its 19 February peak has already
exceeded the average peak-to-trough seen around recessions, suggesting that
recession risk has already been fully priced. What matters here for market timing
purposes is not the average, but the detail. What were the specific preconditions
under which this bear market emerged?
> We found that one of the best variables to explain the variation around the average
peak-to-trough returns for the S&P 500 Index is the Shiller CAPE at the prior market
Source: Shiller database, Robeco, Bloomberg
peak. Allowing for the fact that we’ve had a historically high starting CAPE (31) at the
February S&P 500 Index peak prior to this sell-off, the remaining downside in the
Peak CAPE versus subsequent peak-to-trough returns
S&P from the current index level is still > 10%. The lesson to be drawn from this
analysis is to keep an eye on downside risk, as it could still be lurking in a corner of
this bear market.
> Low visibility on the macro front, a state of denial in investor sentiment,
unpredictable 10%+ bounces and stretched ex ante US valuation levels are
important clues that we might not be out of the woods yet. Therefore, the risk for
bears is that they are waiting for a trough that already happened. There is therefore
obvious two-way risk for equity investors at this juncture.
Source: Shiller database, Robeco, Bloomberg
4
Special Topic Economy Equities Fixed Income Commodities & FX
United States
Initial jobless claims have seen a massive spike
X1000
> The Fed was amongst the first developed central banks to act when it lowered
interest rates at the beginning of March. Since then, the frequency of additional
measures has rapidly increased. The Fed lowered rates again, removed its cap to
purchase Treasuries and mortgage-backed securities, lined up a substantial number
of specific financing facilities, and opened new swap line facilities to address the
dollar shortage problem that appeared to develop outside the US.
> Given that social distancing is the new norm, and some economic activity has almost
come to a complete stop, just like most other countries, the US will experience a
negative growth shock. It should therefore be no surprise that estimates for growth
in second-quarter GDP are substantially negative, and that expectations are for the
Source: Bloomberg, Robeco
unemployment rate to significantly rise. To counter the negative impact, the US
Percentage of total workers who could work from home Congress has passed both a fiscal package and a substantial stimulus package worth
roughly USD 2 trillion in total.
> Support measures by central banks and government are important, but what really
matters for the economic outlook is how long social distancing and the lockdowns
will remain in place. The first indications we are getting from China is that these
extreme measures are indeed effective. All eyes are now on Europe, and on Italy in
particular, to get confirmation that these measures are bearing fruit. The question,
however, is to what extent this is a good blueprint for the US, as there seems to be
less willingness or tolerance for social distancing and lockdowns there.
Source: BLS JP Morgan
5
Special Topic Economy Equities Fixed Income Commodities & FX
Europe
German producer sentiment plunges
> With Italy and Spain in full lockdown, and major export markets like China and the
US also suffering from the Covid-19 pandemic, large parts of the European economy
have come to a sudden stop. The final release of the leading IFO sentiment index in
March plunged to 79.7. That is close to the 79.1 low point during the global financial
crisis. The bad news is that the final 10% of responses in the IFO survey were
implicitly at 59.0. That suggests that another large hit to European producer
confidence is yet to come in next month’s survey, likely dropping the IFO well below
the lows seen in December 2008. Germany intends to loosen up social distancing
measures around 19 April, and Italy around 14 April. However, the damage from the
lockdowns is already done. Data from Spain’s social security service shows that since
the lockdown started there on 12 March, 898,822 workers have lost their jobs.
Source: Refinitive, Robeco
That’s already around 5% of the total number of people employed in Spain in a
Unemployment data is about to make a major turn for the worse couple of weeks. Eurozone unemployment had hit a cyclical low of 7.3% in February,
but will likely edge up above 10%, looking at previous recessions.
> Nonetheless, there is one mitigating factor. This time around, policymakers in the
Eurozone have acted swiftly. Germany has released a fiscal stimulus package worth
3.6% of GDP, de facto removing its cherished balanced budget goal. France plans
stimulus worth 1.9% of GDP, followed by Spain and Italy (both 1.4% of GDP). A flurry
of other measures are being implemented in most Eurozone countries: additional
healthcare spending, temporary tax cuts, loan payment deferrals, working time
reductions, worker subsidies, and credit guarantees to protect the small-caps. Also,
the ECB has forcefully intervened in bond markets and initiated a EUR 750 billion
Pandemic Emergency Purchase Program.
Source: Refinitive, Robeco
6
Special Topic Economy Equities Fixed Income Commodities & FX
Japan
Manufacturing: the slide lower has started
> In line with other countries, both the government and the Bank of Japan have
undertaken measures to support the economy. Lessons were learned from the
global financial crisis, as the response to the current crisis was quick. Just like the
ECB, the BoJ refrained from lowering its policy rates. Given the concern the BoJ has
on the negative impact that exceptionally low rates have on banks, this should not
come as a surprise.
> The policy measures were mainly targeted at keeping financing lines open to firms
and keeping funding markets open. The buying program for ETFs and REITs was also
increased. A zero-rate loan program for companies was also introduced. The
government announced an additional loan package on top of the earlier measures,
Source: Bloomberg, Robeco
bringing the total government financing support program to around USD 15 billion.
Inflation remains far from the targeted level
% > Japan is already set up to implement helicopter money. The combination of running
a budget deficit and fiscal stimulus in an environment where the BoJ controls the
yield curve equals, or at least comes close, to some sort of helicopter money.
> Current circumstances warrant an expansionary policy. We expect the government
to announce a new economic package as soon as the initial budget is approved by
parliament. This will most likely focus directly on firms and households that are
affected by the virus outbreak. The size of this package could be 10% of GDP.
> The inflation index excluding both energy and fresh food – the gauge preferred by
the BoJ – came in at 0.4% year-on-year and remains far below the target of 2.0%.
Source: Bloomberg, Robeco
7
Special Topic Economy Equities Fixed Income Commodities & FX
China
Hotel occupancy rates China are slowly recovering
> The official story is that China is slowly kickstarting its economy, now that the virus
has been beaten domestically. The lockdown in Wuhan has been lifted, and people
are returning to work. There are US intelligence reports, however, that say the
number of official cases in China are under-reported, a hypothesis that is confirmed
by the renewed closure of theatres in some areas.
> China’s manufacturing PMI rose to 52 in March, up from 35.7 in February. This was
due to the output component rising from 27.8 to 54.1, suggesting that factories are
restarting production after a 2-month lockdown. However, this number is less
encouraging than it seems, given the methodology behind the Chinese PMI data.
The numbers reflect the net reported improvement in activity relative to the prior
Source: UBS
month. As a reading of 50 indicates there is no relative change compared to the
prior month, a level of 54 is nothing to cheer about. A very gradual bottoming out in
More room to cut rates further
activity is also seen in a services sector like hotels, where occupancy rates have
slowly risen to 25% in recent weeks from 10%, but are still 35% below average. If the
official story about zero new domestic Covid-19 cases is correct, and the virus has
indeed been beaten, then the slow restarting of Chinese economy last month
suggests the presence of second-round effects, where domestic consumers are wary
in the aftermath of the lockdowns. The credit impulse in China has been weakening
further, suggesting that a return to normalcy will be delayed.
> The central bank has been moving to a net easing stance, with the reserve
requirement ratio for big banks now at 12.5%. Also, the 7-day reverse repo rate was
cut. As we noted last month, a more proactive fiscal and monetary stance was to be
expected, with officials now noting that “a stage with stronger counter-cyclical
Source: Refinitive, Robeco adjustment” has been entered.
8
Special Topic Economy Equities Fixed Income Commodities & FX
Equities (I)
Exceptional volatility with the VIX touching 82.69 on 16 March
> March 2020 will not be easily forgotten. In reaction to the external shock posed by
Covid-19 and an erupting price war in oil markets, equities made the fastest slide
into a recessionary bear market ever seen. Global equities fell 13.1.% in euros in
March. This is a gross understatement of the intra-month volatility that has been
four times the average market volatility of 15%. While there could be a speed versus
duration trade-off with regard to peak-to-trough moves, the dust has not yet
settled. Even if this bear market turns out to be the shortest in history – on average
they have lasted 13.4 months for US equities since 1873 – its legacy will live on.
> Equities tend to rise after emergency rate cuts. This time, however, cuts by the Fed
and other central banks were ultimately not able to calm markets. Though the
Source: Refinitive, Robeco
various liquidity measures undertaken eased forced selling pressure, market turmoil
Beware: unlike in 1987, this is a recessionary bear market endured nonetheless, as the coronavirus outbreak evolved into a full-blown
pandemic.
> There is a large variation in consensus US Q2 GDP estimates The modal view that
emerges is for an annualized US GDP contraction that exceeds 10% in Q2. This is
more than twice global financial crisis levels. Swift and massive action from central
banks and governments (the US with the CARE act, Germany abandoning its
cherished balanced budget policy) will likely dampen the impact, but will not
prevent an earnings recession. In the last two recessions. S&P earnings contracted
by 20%-35%. Given the potentially larger GDP hit, the total EPS decline could be
proportionally deeper this time around.
Source: Refinitive, Robeco
9
Special Topic Economy Equities Fixed Income Commodities & FX
Equities (II)
Downward EPS revisions have further to go
> Forward earnings revisions on a 12-month horizon have dropped deeper into
net downgrades territory, but have not dipped below a rate of 0.18, the trough
that was observed in the last two recessions. While profit margins could be
relatively shielded as a result of government intervention, the impact on top-
line growth from declining consumer confidence could be severe.
> Lower discount rates could benefit impacted SMEs and prevent an unwarranted
tightening of financial conditions. It remains doubtful, however, whether lower
discount rates are sufficient to reinvigorate risk appetite among investors,
consumers and producers. Sometimes the ability to spend on discretionary
items is simply not possible, given social distancing and lockdown measures.
Source: Refinitive, Robeco
Cheap, but not cheap enough > Therefore it is possible that downward EPS revisions may move lower and could
potentially drop below the 0.18 level. Given the positive correlation between
EPS revisions and P/E multiples, this points to more multiple compression
ahead. This hypothesis is also confirmed by the negative correlation between
the ISM Manufacturing Index and the P/E of the MSCI World Index. Although
April ISM manufacturing only indicated a marginal contraction of US activity, the
big hit in producer confidence is still to come. If the ISM drops below 45 in May,
it suggests that the current MSCI World P/E could decline below its current 15.2.
We lowered our weight in equities in February to neutral and kept this position
as the coronavirus outbreak continued to pose a two-way risk for equities.
Source: Refinitive, Robeco
10Special Topic Economy Equities Fixed Income Commodities & FX
Developed Market Equities
Developed market equities: snowballing negative momentum
> Developed equity markets have experienced one of the most turbulent months in
recent history. The VIX spiked on 16 March to a level of 82, one that was not even
observed during the global financial crisis. Negative equity momentum accelerated
to crushing intra-month levels, with the Eurostoxx 600 down as much as 35.3% at 18
March. We are now clearly in bear market territory.
> Short-term momentum remains deeply negative for developed market equities.
Monthly momentum of equity returns in local currency showed that the S&P 500
lost 12.5%, while the European Stoxx600 dropped 14.8% in local currency. Returns
in Japan were slight less dire compared to other developed markets: the Nikkei 225
fell 10.5% in March. The long momentum signal (12M-1M) in local currency of the
Source: Refinitive, Robeco
S&P 500 remains positive and was still at a decent level (+7.7% ) at the end of
month. However, the long-term signal for the Eurostoxx 600 became negative and is
Valuation: US CAPE finally drops as bear market takes hold
currently -2.1%. The long momentum signal for Japanese equities is -0.8%.
> We went into this bear market with the February Shiller CAPE at 31.5. Historically,
this stretched valuation level has repercussions for the peak-to-trough depth and
duration. High ex-ante valuation levels tends to deepen the trough and extend the
duration of a bear market. In these turbulent times, the price action ‘P’ dominates
the ‘E’ of the P/E. Despite a drop in the Shiller CAPE for the US to 23.2, US equities
are still not cheap. The current level of 13.9 is below the historical average for
European equities but still above the 2009 trough levels. Given actual volatility
levels, we currently have no preference for any developed equity market region.
Source: Refinitive, Robeco
11Special Topic Economy Equities Fixed Income Commodities & FX
Equities
Emerging versus developed markets
China: manufacturing and non-manufacturing PMIs
> Emerging markets experienced their worst month since the global financial crisis.
The MSCI EM Index fell 15.3%, underperforming the MSCI World Index, which was
down 13.1%.
> China was the country where the coronavirus first manifested itself. After draconian
measures to prevent a further spreading of the virus, China is now also the first to
go into the recovery. Both its manufacturing and non-manufacturing PMIs spiked
back above 50 in March. Other indicators, however, such as commodity
consumption, traffic congestion and real estate transactions indicate that China’s
economic activity has not yet normalized.
Source: Bloomberg, Robeco
> For many other emerging economies, most of the economic downturn has yet to be
felt. This will be especially challenging for countries with (structural) weaknesses,
Valuation: emerging versus developed markets such as Turkey, South Africa and more recently Brazil. The collapse in oil prices and
sharp decline in commodity prices in general could aggravate things.
> In addition, as a grouping, emerging countries are so far offering less fiscal and
monetary stimulus compared to their developed counterparts. While the reasons
for this are diverse (high debt, imbalances, social safety net, currency pegs), we
believe leadership on stimulus could lead to differences in relative performance
within equities.
> We stay neutral on emerging market equities. While China goes into recovery first,
economic uncertainty remains extremely high with market technicals, sentiment
and valuation not attractive enough relative to developed market equities.
Source: Refinitiv Datastream
12Special Topic Economy Equities Fixed Income Commodities & FX
AAA Bonds (I)
10-year yields: central bank commitment matters
0.50%
> On 9 March, the 10-year US Treasury yield dropped below 50 basis points and at
0.40% some point reached an all-time low of 33 bps. The extreme anxiety that caused this
0.30%
0.20%
drop in yields was seen across all markets. The absence of any visibility on how long
0.10% the coronavirus outbreak will keep the world hostage weighed heavily on sentiment.
0.00%
-0.10% While the cost of lockdowns or social distancing is known – a severe drop in
-0.20%
-0.30%
economic activity – a couple of things have turned the negative feedback loop. First,
-0.40% the measures in China seems to be paying off, and second, central banks and
-0.50%
-0.60%
governments around the world have announced substantial support measures.
US Germany UK Japan Spain Greece Italy
> The coming economic numbers will be bad. Given the wide range of economic
estimates, it likely that financial markets will start to react when the figures become
Source: Bloomberg & Robeco
known. Again, all eyes are on China as a template for how things might develop. This
China PMI: back above 50 but not convincingly
will give us some clues on the likely deepness of the economic downturn and the
protraction of the slowdown in other regions.
> The latest Chinese PMI rebounded to above 50 after dropping to 35.7 in February.
The good news is that there is no further deterioration in activity compared to
February. The disappointing news is that the improvement compared to the trough
in February is only marginal. So, this might be an indication that the reacceleration
of activity might take longer.
> This is important, as markets continue to struggle to determine what shape the
recovery will ultimately be. Will it be a quick rebound, or will it be more protracted?
The ultimate shape of the recovery is what matters most to financial markets.
Source: Robeco & Bloomberg
13Special Topic Economy Equities Fixed Income Commodities & FX
AAA Bonds (II)
The US: confidence data still hanging on in there
> The latest consumer confidence and manufacturing data out of the US were weaker,
though only marginally. We expect the coming data to start reflecting the impact of
the coronavirus crisis more fully.
> What also matters is the effectiveness of policy measures and the credibility of
policymakers. The importance of the latter became clear when the market
questioned the commitment of the ECB, and peripheral spreads started to widen.
Only after ECB clarified its commitment did peripheral spreads start to narrow again.
> We don’t have a strong view on the future direction of the bond markets. This is
mostly a consequence of the limited visibility on the shape of the recovery. What we
Source: Source: Bloomberg & Robeco
do know is that the chance that short-term rates will rise is limited, since we don’t
see central banks changing their policies anytime soon. We also don’t see a swift
Inflation expectations drove the March drop in 10-year yields end to the bond-buying programs, and find it hard to see any inflationary pressure
building. The sudden drop in activity will most probably be deflationary.
> What we do know is that it has been rewarding in the past to buy what the central
banks buy. Instead of buying government bonds, we therefore prefer fixed income
instruments with a little more juice, namely corporate debt.
> We closed our overweight position in duration this month and have moved
underweight. We don’t think governments bonds will do badly, but we think our
money is better spent on securities that offer a pick-up to government bonds.
Source: Source: Bloomberg & Robeco
14Special Topic Economy Equities Fixed Income Commodities & FX
Investment Grade Credits
Credits: spreads in the Eurozone and US
v > Global investment grade credits were also hit hard by the unfolding crisis. The asset
class fell 7%, with US corporate bonds falling even more.
> As the chart on the top left shows, investment grade spreads have widened
significantly. This is especially the case in the US, where spreads are up to levels not
seen since the global financial crisis. In fact, based on historical data of equity
drawdowns and spread widening around previous recessions, US credits currently
are now discounting an even more severe recession than other risk assets.
> Meanwhile, the US Federal Reserve and European Central Bank have announced
major quantitative easing programs that include corporate bond buying. The Fed will
Source: Bloomberg, Robeco buy bonds in both the primary (issuance) and the secondary market, and any eligible
company may borrow an amount in excess of its outstanding debt from the Fed.
Credits: regional spreads and performance This will enable a company to roll over all its outstanding debt and more.
v
> The combination of much more attractive valuations and central bank buying makes
this asset class attractive. We therefore decided to increase our allocation to
investment grade bonds in the model portfolio.
> With volatility still extremely high, there is a reasonable chance that we are too
early, and that things will deteriorate before the outlook brightens. But on a 12-
month horizon, we believe the asset class will outperform both cash and
government bonds.
Source: Bloomberg, Robeco
15Special Topic Economy Equities Fixed Income Commodities & FX
High Yield
Global high yield: spreads are increasing
> Global high yield bonds fell almost 14%. The sudden stop of economies will certainly
trigger a new default cycle. Spreads spiked to levels only seen during the global
financial crisis.
> After an extended period being underweight, we have increased the weighting of
global high yield bonds to a small overweight in the multi-asset portfolio. We believe
that the asset class offers an attractive risk/return perspective over a 12-month
horizon, with spreads levels rising to almost 1,200 basis points.
> Spreads only rose to (much) higher levels during the global financial crisis. However,
due to the relatively swift response from policymakers and the focus to prevent
Source: Robeco & Bloomberg defaults as much as possible, it is not our base case that we see a default cycle as
severe as the one in 2008/2009. Assuming a recovery rate of 40%, high yield bonds
US high yield default rates were discounting almost 20% of defaults. We think this is too much given the
current policy response, and that the possibility that an eventual recession would
only be short lived.
> There remain uncertainties, however, and for now this keeps us from implementing
a bigger overweight. First, the cumulative economic impact of the virus is still an
unknown. As lockdown measures continue, the impact continues to grow. The
longer it takes for a recovery to occur, the bigger the odds are that we move into a
solvency crisis. This will push the default rate up significantly. Second, market
liquidity (or the lack of it) remains a factor. Third, oil prices could fall to as low as
USD 10 a barrel, putting even more pressure on the low-rated shale oil sector.
Source: Bank of America
16Special Topic Economy Equities Fixed Income Commodities & FX
Emerging Market Debt
Emerging market debt in local currency: spread and yield
> Local currency emerging market debt realized a negative return of more than 14% in
March. This makes it the worst-performing fixed income asset class. A large part of
that return is explained by a sharp drop in currencies, as is shown in the chart on the
bottom left.
> Obviously, local currency emerging debt also was impacted by the outbreak of the
coronavirus and the measures taken to contain it. Spreads have widened, but only to
levels we saw in the years after the global financial crisis. As emerging debt yields
fell together with bond yields in developed markets, the average yield remains low.
This compares to a much higher yield for high yield bonds.
Source: Bloomberg, Robeco > Lower inflation and higher real interest rates means that emerging countries
theoretically have more room to cut central bank rates than many developed market
Emerging market currencies against the euro countries. However, due to imbalances in a number of countries, this is less
straightforward in practice. The weaknesses of some countries like Turkey and more
recently South Africa and Brazil have come under scrutiny. Emerging currencies are
under pressure once again, and the adverse economic effects of the virus outbreak
are likely to be reflected in more currency weakness.
> For now, we remain neutral on local currency emerging market debt, but the
attractiveness of the asset class has declined. Yields remain extremely low while
risks have increased materially. Other asset look more attractive.
Source: Thomson Reuters. Refinitiv Datastream, Robeco
17Special Topic Economy Equities Fixed Income Commodities & FX
FX (I)
G-10: defensive currencies lead the way in March
> Juts like in February, the weakest currencies in the G-10 in March were the cyclical
currencies. Those that have strong links to commodities suffered the most. The
Norwegian krona lost more than 10% as the oil price nose-dived after Russia and
Saudi Arabia got into a spat over cutting production levels.
> In March, the dollar reestablished its reputation as a safe haven currency. In
February, the dollar had failed to offer the usual level of safety that it normally does
during uncertain times. During this month, it actually lost value against low-yielding
currencies like the euro when the impact of the coronavirus was first making itself
known. With hindsight, this episode of dollar weakness can probably be explained
by two drivers. First, low yielders were used as funding currencies during the strong
Source: Bloomberg, Robeco
run up in risk assets to mid-February. When these risk assets started to wobble,
Commodity currencies: the Norwegian krona suffers trades needed to be unwound, and this created an artificial demand for the low-
yielding currencies that had been used for funding. The second driver was the
Crude oil increases narrowing of yield differentials; the yield advantage of the US dollar evaporated in a
short period of time after the Fed twice implemented emergency rate cuts, taking
the federal reserve rate to almost zero.
> It looks that these drivers for the US dollar have run their course. The new dominant
Decreasing Norwegian Krona
force seem to be a shortage of dollars outside the US. Several indicators are starting
to flash at least orange that stress is building in the US dollar funding markets. The
TED spread has widened, the commercial paper yield has increased substantially,
and the differential between the greenback and other currencies has widened.
Source: Bloomberg, Robeco
18Special Topic Economy Equities Fixed Income Commodities & FX
FX (II)
Massive increase seen in the commercial paper rate
> The Fed didn’t just sit back as these events started to emerge. It quickly launched a
commercial paper funding facility and reopened swap lines with several central
banks around the world. The goal is to provide access to the greenback to ease the
US dollar shortage outside the US.
> The Fed has not been acting alone. Across the world, fiscal packages and central
bank measures were taken. What is important for the dollar is whether the Fed’s
measures are sufficient to ease the stress. If they are, this will enable fundamentals
to reassert themselves as drivers for the dollar.
> While it would be nice to focus on fundamentals again, the reality is that this will be
Source: Societe General quite difficult over the coming period. The measures that governments around the
world have undertaken to limit or slow the spreading of the coronavirus have all had
Yield differentials are narrowing between the 1-month and 2-year an impact on activity. So, the base case should be that the coming economic
numbers will be terrible. One thing that also might differentiate one economy from
another is the difference in their relative social structures. From that perspective,
the Eurozone might be better equipped to deal with the current crisis. In the US, the
barriers to firing people are much lower, and the social safety net limited. If this is
just a temporary external shock, the Eurozone economy might ultimately fare a bit
better. Whether this will play out in the currency market is for now uncertain.
> We currently hold no active currency positions in the portfolio.
Source: Bloomberg, Robeco
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Robeco Institutional Asset Management B.V. has a license as manager of Undertakings for Collective Investment in made solely on the basis of information contained in the prospectus, which information may be different from the
Transferable Securities (UCITS) and Alternative Investment Funds (AIFs) (“Fund(s)”) from The Netherlands Authority for information contained in this document. Prospective applicants for shares should inform themselves as to legal
the Financial Markets in Amsterdam. This document is solely intended for professional investors, defined as investors requirements also applying and any applicable exchange control regulations and applicable taxes in the countries of
qualifying as professional clients, have requested to be treated as professional clients or are authorized to receive such their respective citizenship, residence or domicile. The Fund information, if any, contained in this document is qualified
information under any applicable laws. Robeco Institutional Asset Management B.V and/or its related, affiliated and in its entirety by reference to the prospectus, and this document should, at all times, be read in conjunction with the
subsidiary companies, (“Robeco”), will not be liable for any damages arising out of the use of this document. Users of prospectus. Detailed information on the Fund and associated risks is contained in the prospectus. The prospectus and
this information who provide investment services in the European Union have their own responsibility to assess whether the Key Investor Information Document for the Robeco Funds can all be obtained free of charge at www.robeco.com.
they are allowed to receive the information in accordance with MiFID II regulations. To the extent this information
qualifies as a reasonable and appropriate minor non-monetary benefit under MiFID II, users that provide investment
services in the European Union are responsible to comply with applicable recordkeeping and disclosure requirements. Additional Information for US investors
The content of this document is based upon sources of information believed to be reliable and comes without Neither Robeco Institutional Asset Management B.V. nor the Robeco Capital Growth Funds have been registered under
warranties of any kind. Without further explanation this document cannot be considered complete. Any opinions, the United States Federal Securities Laws, including the Investment Company Act of 1940, as amended, the United
estimates or forecasts may be changed at any time without prior warning. If in doubt, please seek independent advice. It States Securities Act of 1933, as amended, or the Investment Advisers Act of 1940. No Fund shares may be offered or
is intended to provide the professional investor with general information on Robeco’s specific capabilities, but has not sold, directly or indirectly, in the United States or to any US Person. A US Person is defined as (a) any individual who is a
been prepared by Robeco as investment research and does not constitute an investment recommendation or advice to citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity
buy or sell certain securities or investment products and/or to adopt any investment strategy and/or legal, accounting or created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is
tax advice. All rights relating to the information in this document are and will remain the property of Robeco. This subject to United States federal income tax regardless of whether such income is effectively connected with a United
material may not be copied or used with the public. No part of this document may be reproduced, or published in any States trade or business. Robeco Institutional Asset Management US Inc. (“RIAM US”), an Investment Adviser registered
form or by any means without Robeco's prior written permission. Investment involves risks. Before investing, please with the Securities and Exchange Commission under the Investment Advisers Act of 1940, is a wholly owned subsidiary
note the initial capital is not guaranteed. Investors should ensure that they fully understand the risk associated with any of ORIX Corporation Europe N.V. and offers investment advisory services to institutional clients in the US. In connection
Robeco product or service offered in their country of domicile (“Funds”). Investors should also consider their own with these advisory services, RIAM US will utilize shared personnel of its affiliates, Robeco Nederland B.V. and Robeco
investment objective and risk tolerance level. Historical returns are provided for illustrative purposes only. The price of Institutional Asset Management B.V., for the provision of investment, research, operational and administrative services.
units may go down as well as up and the past performance is not indicative of future performance. If the currency in
which the past performance is displayed differs from the currency of the country in which you reside, then you should
Additional Information for investors with residence or seat in Australia and New Zealand
be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into
your local currency. The performance data do not take account of the commissions and costs incurred on trading This document is distributed in Australia by Robeco Hong Kong Limited (ARBN 156 512 659) (“Robeco”), which is exempt
securities in client portfolios or on the issue and redemption of units. Unless otherwise stated, the prices used for the from the requirement to hold an Australian financial services license under the Corporations Act 2001 (Cth) pursuant to
performance figures of the Luxembourg-based Funds are the end-of-month transaction prices net of fees up to 4 August ASIC Class Order 03/1103. Robeco is regulated by the Securities and Futures Commission under the laws of Hong Kong
2010. From 4 August 2010, the transaction prices net of fees will be those of the first business day of the month. Return and those laws may differ from Australian laws. This document is distributed only to “wholesale clients” as that term is
figures versus the benchmark show the investment management result before management and/or performance fees; defined under the Corporations Act 2001 (Cth). This document is not for distribution or dissemination, directly or
the Fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the indirectly, to any other class of persons. In New Zealand, this document is only available to wholesale investors within
valuation moment of the benchmark. Please refer to the prospectus of the Funds for further details. Performance is the meaning of clause 3(2) of Schedule 1 of the Financial Markets Conduct Act 2013 (‘FMCA’). This document is not for
quoted net of investment management fees. The ongoing charges mentioned in this document are the ones stated in public distribution in Australia and New Zealand.
the Fund's latest annual report at closing date of the last calendar year. This document 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, document, availability or use would be contrary to law or regulation or which Additional Information for investors with residence or seat in Austria
would subject any Fund or Robeco Institutional Asset Management B.V. to any registration or licensing requirement This information is solely intended for professional investors or eligible counterparties in the meaning of the Austrian
within such jurisdiction. Any decision to subscribe for interests in a Fund offered in a particular jurisdiction must be Securities Oversight Act.
20Additional Information for investors with residence or seat in Brazil Additional Information for investors with residence or seat in Germany
The Fund may not be offered or sold to the public in Brazil. Accordingly, the Fund has not been nor will be registered This information is solely intended for professional investors or eligible counterparties in the meaning of the German
with the Brazilian Securities Commission – CVM, nor has it been submitted to the foregoing agency for approval. Securities Trading Act.
Documents relating to the Fund, as well as the information contained therein, may not be supplied to the public in
Brazil, as the offering of the Fund is not a public offering of securities in Brazil, nor may they be used in connection with
any offer for subscription or sale of securities to the public in Brazil. Additional Information for investors with residence or seat in Hong Kong
The contents of this document have not been reviewed by the Securities and Futures Commission (“SFC”) in Hong Kong.
If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.
Additional Information for investors with residence or seat in Canada This document has been distributed by Robeco Hong Kong Limited (“Robeco”). Robeco is regulated by the SFC in Hong Kong.
No securities commission or similar authority in Canada has reviewed or in any way passed upon this document or the
merits of the securities described herein, and any representation to the contrary is an offence. Robeco Institutional Additional Information for investors with residence or seat in Italy
Asset Management B.V. is relying on the international dealer and international adviser exemption in Quebec and has
appointed McCarthy Tétrault LLP as its agent for service in Quebec. This document is considered for use solely by qualified investors and private professional clients (as defined in Article 26
(1) (b) and (d) of Consob Regulation No. 16190 dated 29 October 2007). If made available to Distributors and individuals
authorized by Distributors to conduct promotion and marketing activity, it may only be used for the purpose for which it
Additional Information for investors with residence or seat in Colombia was conceived. The data and information contained in this document may not be used for communications with
Supervisory Authorities. This document does not include any information to determine, in concrete terms, the
This document does not constitute a public offer in the Republic of Colombia. The offer of the Fund is addressed to less
investment inclination and, therefore, this document cannot and should not be the basis for making any investment
than one hundred specifically identified investors. The Fund may not be promoted or marketed in Colombia or to
decisions.
Colombian residents, unless such promotion and marketing is made in compliance with Decree 2555 of 2010 and other
applicable rules and regulations related to the promotion of foreign Funds in Colombia.
Additional Information for investors with residence or seat in Shanghai
Additional Information for investors with residence or seat in the Dubai International Financial Centre (DIFC), This material is prepared by Robeco Investment Management Advisory (Shanghai) Limited Company (“Robeco
United Arab Emirates Shanghai”) and is only provided to the specific objects under the premise of confidentiality. Robeco Shanghai has not yet
been registered as a private fund manager with the Asset Management Association of China. Robeco Shanghai is a
This material is being distributed by Robeco Institutional Asset Management B.V. (Dubai Office) located at Office 209, wholly foreign-owned enterprise established in accordance with the PRC laws, which enjoys independent civil rights and
Level 2, Gate Village Building 7, Dubai International Financial Centre, Dubai, PO Box 482060, UAE. Robeco Institutional civil obligations. The statements of the shareholders or affiliates in the material shall not be deemed to a promise or
Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals guarantee of the shareholders or affiliates of Robeco Shanghai, or be deemed to any obligations or liabilities imposed to
with Professional Clients or Market Counterparties and does not deal with Retail Clients as defined by the DFSA. the shareholders or affiliates of Robeco Shanghai.
Additional Information for investors with residence or seat in France Additional Information for investors with residence or seat in Peru
Robeco is at liberty to provide services in France. Robeco France (only authorized to offer investment advice service to The Fund has not been registered with the Superintendencia del Mercado de Valores (SMV) and is being placed by
professional investors) has been approved under registry number 10683 by the French prudential control and resolution means of a private offer. SMV has not reviewed the information provided to the investor. This document is only for the
authority (formerly ACP, now the ACPR) as an investment firm since 28 September 2012. exclusive use of institutional investors in Peru and is not for public distribution.
21Additional Information for investors with residence or seat in Singapore Bahnhofstrasse 45, 8001 Zurich, postal address: Europastrasse 2, P.O. Box, CH-8152 Opfikon, as Swiss paying agent. The
This document has not been registered with the Monetary Authority of Singapore (“MAS”). Accordingly, this document prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual and semi-annual
may not be circulated or distributed directly or indirectly to persons in Singapore other than (i) to an institutional reports of the Fund(s), as well as the list of the purchases and sales which the Fund(s) has undertaken during the
investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to financial year, may be obtained, on simple request and free of charge, at the office of the Swiss representative Robeco
Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, Switzerland AG, Josefstrasse 218, CH-8005 Zurich. The prospectuses are also available via the website www.robeco.ch.
and in accordance with the conditions of, any other applicable provision of the SFA. The contents of this document have
not been reviewed by the MAS. Any decision to participate in the Fund should be made only after reviewing the sections Additional Information for investors with residence or seat in the United Arab Emirates
regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions (as
described in the section entitled “Important Information for Singapore Investors”) contained in the prospectus. You Some Funds referred to in this marketing material have been registered with the UAE Securities and Commodities
should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of this Authority (the Authority). Details of all Registered Funds can be found on the Authority’s website. The Authority
document, regulatory status of the Fund, applicable regulatory protection, associated risks and suitability of the Fund to assumes no liability for the accuracy of the information set out in this material/document, nor for the failure of any
your objectives. Investors should note that only the sub-funds listed in the appendix to the section entitled “Important persons engaged in the investment Fund in performing their duties and responsibilities.
Information for Singapore Investors” of the prospectus (“Sub-Funds”) are available to Singapore investors. The Sub-
Funds are notified as restricted foreign schemes under the Securities and Futures Act, Chapter 289 of Singapore (“SFA”) Additional Information for investors with residence or seat in the United Kingdom
and are invoking the exemptions from compliance with prospectus registration requirements pursuant to the
exemptions under Section 304 and Section 305 of the SFA. The Sub-Funds are not authorized or recognized by the MAS Robeco is subject to limited regulation in the UK by the Financial Conduct Authority. Details about the extent of our
and shares in the Sub-Funds are not allowed to be offered to the retail public in Singapore. The prospectus of the Fund is regulation by the Financial Conduct Authority are available from us on request.
not a prospectus as defined in the SFA. Accordingly, statutory liability under the SFA in relation to the content of
prospectuses would not apply. The Sub-Funds may only be promoted exclusively to persons who are sufficiently
Additional Information for investors with residence or seat in Uruguay
experienced and sophisticated to understand the risks involved in investing in such schemes, and who satisfy certain
other criteria provided under Section 304, Section 305 or any other applicable provision of the SFA and the subsidiary The sale of the Fund qualifies as a private placement pursuant to section 2 of Uruguayan law 18,627. The Fund must not
legislation enacted thereunder. You should consider carefully whether the investment is suitable for you. Robeco be offered or sold to the public in Uruguay, except in circumstances which do not constitute a public offering or
Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is distribution under Uruguayan laws and regulations. The Fund is not and will not be registered with the Financial Services
subject to certain clientele restrictions under such license. Superintendency of the Central Bank of Uruguay. The Fund corresponds to investment funds that are not investment
funds regulated by Uruguayan law 16,774 dated September 27, 1996, as amended.
Additional Information for investors with residence or seat in Spain
The Spanish branch Robeco Institutional Asset Management B.V., Sucursal en España, having its registered office at Additional Information concerning RobecoSAM Collective Investment Schemes
Paseo de la Castellana 42, 28046 Madrid, is registered with the Spanish Authority for the Financial Markets (CNMV) in The RobecoSAM collective investment schemes (“RobecoSAM Funds”) in scope are sub funds under the Undertakings
Spain under registry number 24. for Collective Investment in Transferable Securities (UCITS) of MULTIPARTNER SICAV, managed by GAM (Luxembourg)
S.A., (“Multipartner”). Multipartner SICAV is incorporated as a Société d'Investissement à Capital Variable which is
governed by Luxembourg law. The custodian is State Street Bank Luxembourg S.C.A., 49, Avenue J. F. Kennedy, L-1855
Additional Information for investors with residence or seat in Switzerland Luxembourg. The prospectus, the Key Investor Information Documents (KIIDs), the articles of association, the annual
This document is exclusively distributed in Switzerland to qualified investors as defined in the Swiss Collective and semi-annual reports of the RobecoSAM Funds, as well as the list of the purchases and sales which the RobecoSAM
Investment Schemes Act (CISA) by Robeco Switzerland AG which is authorized by the Swiss Financial Market Supervisory Fund(s) has undertaken during the financial year, may be obtained, on simple request and free of charge, via the website
Authority FINMA as Swiss representative of foreign collective investment schemes, and UBS Switzerland AG, www.robecosam.com or www.funds.gam.com.
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