E-magazine: Spotlight on the United States (HK)

In this issue

THE US CENTURY AGAIN Page 5 DEDICATED FOLLOWERS OF FASHION

Page 8 THE MAST-ER PLAN FOR MENDING BOATS

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SPOTLIGHT ON THE UNITED STATES A collection of articles to commemorate Robeco’s sponsorship of the Volvo Ocean Race MAY 2015

CONTENTS 3 Foreword 4 ‘the century of the US’... Again 6 US low-vol: why it’s time to be selective 8 Dedicated followers of fashion 10 The brave new world of finance 12 The mast-er plan for mending boats 15 Finding the right wave points in equities 16 Contact

4-11 October

Alicante

14-15 March

Auckland

14-17 June

Lorient

15-19 November

Cape Town

18-19 April

Itajaí

19 June

The Hague (Pit Stop)

2-3 January

Abu Dhabi

16-17 May

Newport

27 June

Gothenburg

6-7 June

Lisbon

7-8 February Sanya 2|

For professional investors. The information contained in this publication is not intended for users from other countries, such as US citizens and residents, where the offering of foreign financial services is not permitted, or where Robeco’s services are not available.

FOREWORD Sailors once looked for the ‘New World’. Now the United States is the world’s most powerful nation, and Newport is a fitting stopover port for the Volvo Ocean Race, with a strong naval tradition that goes back to the 18th century.

Our sponsored boat Team Brunel and its five remaining competitors are enjoying a final rest before tackling the last major leg, across the Atlantic to Europe. There are three more stopovers to come, in Portugal, France and briefly in the Netherlands before the race to the finishing line in Sweden.

To commemorate the Newport stopover, we are pleased to publish our seventh magazine, focusing on the US, as well as some stories directly from the brave crew of Team Brunel. In this edition we feature a double interview with Jack Neele, portfolio manager of the Robeco Global Consumer Trends Equities fund, and Team Brunel navigator Andrew Cape on how they both need to know which way the wind is blowing for investing and sailing respectively.

The US has undergone something of a renaissance in recent years, restructuring its economy and creating the shale gas revolution that has had global ramifications for energy prices. Chief economist Léon Cornelissen explains what this means for investors going forward.

For our regular focus on quantitative investing, Pim van Vliet outlines the strategy of Conservative Equities, explaining how it works in the US and in other parts of the world. And Chris Hart explains how he looks for wave points when buying stocks for the Global Premium Equities fund, also using factor investing techniques.

As we doff our sailors’ caps to the US land of opportunity, Patrick Lemmens reveals how the New World Financials fund got its name. Don’t forget that New York was once called New Amsterdam, founded by the Dutch.

Finally, in our latest race report, we cast a spotlight on the Volvo Ocean Race’s ‘mast-er’ plan for fixing broken boats. It was a punishing leg sailing from Brazil, after one competitor withdrew when its mast broke another suffered shredded sails, and others maintained damage dodging ‘death rolls’ and ‘wipeouts’. Sailing is definitely not for the squeamish.

We hope you enjoy our magazine and will continue to follow the race with us.

Roderick Munsters Chief Executive Officer Robeco

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‘US politics does not hinder innovation in the shale gas sector, in contrast to European regulators’

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‘THE CENTURY OF THE US’... AGAIN Léon Cornelissen China and India are making progress, but the US continues to be the main player on the world economic stage.

Although in terms of purchasing power parity, China may have become the counterpart of the US, just extrapolating trend lines is too simplistic a way of formulating a realistic image of the future, says Robeco’s Chief Economist, Léon Cornelissen.

“The 21st century is going to be the century of the United States too,” he says. This has little to do with the role of the US central bank, the Federal Reserve, which in recent years has increasingly left its mark on the economy and the financial markets. It is primarily the resilience of the US economy, which should not be underestimated – a phenomenon that Europeans do not seem to fully appreciate, Cornelissen says.

Monetary policy to remain easy “The Fed will raise rates at some point, but Janet Yellen is in no hurry. That much is clear,” he says.

“Monetary policy is and will remain easy. At worst – slightly less easy. “The US had a disappointing first quarter and there is little optimism about structural growth potential, indicates Cornelissen. The country is also suffering from the effects of climate change.

For two years now it has been plagued by extremely

cold winters, while the rest of the Northern Hemisphere has enjoyed mild winter months.

“The expectations for economic growth are now below the 3% level, which isn’t exactly exuberant.

The demographic tailwind is also a factor,” says Cornelissen. “The US population is aging, although admittedly not to the same extent as that of Japan or Germany.” But there are also positive notes to offset a too-gloomy future scenario, he believes.

The participation of women in society is still increasing and the US is traditionally a country of immigrants.

Far more importantly, the US is still the cradle of technological innovation. “We are seeing interesting breakthroughs in DNA research, robotics and medicine. When you look at this, it is difficult to be gloomy,” says Cornelissen. Yet many consumers, economists and analysts are. And Cornelissen thinks that this is related to how slowly the country’s dented confidence is recovering from the blow it received during the financial crisis.

“It is understandable that the recovery is so slow.

It was an exceptionally deep crisis; the worst since

the 1930s,” he says. “And the US was also grappling with budget debates, automatic spending cuts and a government on the brink of collapse. All are typical elements of American folklore, but at such times the US government makes a negative contribution to growth.”

Wage growth needed According to Cornelissen, the real turnaround will only occur when there is substantial wage growth and that is not yet the case across the board. “Yes, McDonald’s and Wal-Mart have increased pay and the minimum wage has risen somewhat. At the same time unemployment is falling steadily. In the long term, wage growth will pick up. But we are not there yet. And income inequality is also increasing rapidly.”

The shale revolution is also driving the economy, despite the fact that the lower oil price is now dampening euphoria somewhat. But the companies are lean and mean, and US politics does not hinder innovation in this sector either, in contrast to European regulators. And innovation remains the most important means of survival for

a vulnerable US. “The large innovative companies are American. The best universities are in the US. It is always naive to underestimate the economy and the resilience of this country,” says Cornelissen.

“For real innovation and growth you need an open society where political saber-rattling is a sign of vitality. This is an advantage that the US has over a country like China, partly thanks to a spirit of unbridled optimism. Of course, both China and India have more pairs of hands to carry out cheap labor. But cheap farming and copying last century’s business models are not enough to get you there.

You need a vibrant middle class. This is still a long way off for the new superpowers, India and China.”

In short, despite what all those trend lines far out into the future show us, Cornelissen is convinced that the for this century the US will be the main player on the world economic stage…again.

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

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US LOW-VOL: WHY IT’S TIME TO BE SELECTIVE Pim van Vliet The United States was the first equity market in the world for which the low-volatility effect was documented. Portfolio manager Pim van Vliet discusses how he selects low-volatility stocks within Robeco Conservative Equities and explains why the strategy works in the US and in other parts of the world.

Stocks with low beta and low volatility realize higher returns than can be explained using the Capital Asset Pricing Model (CAPM).

This anomaly, better known as the volatility effect, has first been documented in the US stock market.

“The message of ‘lower risk without lower return’ is rather counterintuitive and surprising,” Van Vliet says. “As an investor, you would expect risk and return to go hand in hand.”

“The Conservative Equity strategy capitalizes on the volatility effect and works in different markets, because it is a global phenomenon,” he says. “The volatility effect has been documented in US, but also in European, Japanese and emerging equity markets. The research results from these markets indicate the same thing: equity investors overpay for risky stocks.”

US Conservative Equity in range “US Conservative Equities is the latest strategy of the Robeco Conservative range (that also includes Global, All Countries, Emerging and Europe) and was added in 2013. “This is a nod to the past given

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that the volatility effect was first documented in the US stock market, Van Vliet says. “However, we have had wide experience in selecting US low-volatility stocks with the Global Conservative Equity strategy, which was launched in 2006.”

Besides US stocks, the universe of US Conservative also includes Canadian stocks. The US economy recovered strongly in 2014 and in general investors have become more worried about the valuation of US equities. At the end of the first quarter of 2015, the MSCI US Index had a P/E of 19.1, compared with 16.9 for the MSCI Europe Index and only 13.2 for the MSCI Emerging Markets. Moreover, worries about valuation especially apply to US low-volatility stocks.

With a P/E of 21.9 for the US MSCI Min Vol Index, generic low volatility stocks are even more expensive than the US market index.

Van Vliet points out that the Conservative Equity approach also takes valuation into account when selecting low-volatility stocks. “In circumstances where generic low volatility is more expensive, it is especially important to take valuation into account.

The P/E of our US Conservative equities portfolio

is 17.9, which is considerably lower than a generic low-volatility portfolio and also than the US market as a whole.”

History can provide answers He believes history can provide answers on the effectiveness of the Conservative Equity approach during times when low-volatility stocks are more expensive, as currently is the case in the US. “Today’s environment resembles the 1940s and 1950s,” Van Vliet says. “The global recession of the 1930s was in the memory of most investors and as a result, stable stocks were in high demand, leading to higher valuations compared to the broad market.” He has looked at a large US sample of 82 years and split this sample into two groups: ‘cheap’ where low-volatility stocks have a relatively low price-to-book ratio, and ‘expensive’ where they have a relatively high price-to-book ratio.

Within these groups, Van Vliet looked at a market index, a generic low-volatility strategy and the enhanced low-volatility strategy, which takes valuation and momentum factors into account.

“I compared how well the market and two low-

volatility approaches performed. The results of an enhanced approach were impressive.” “The research shows that the return difference between the two low-volatility approaches is up to 6% per year on average in favor of the enhanced low-volatility strategy. This difference is largest when generic low-volatility stocks are expensive, like in today’s environment.” These results clearly emphasize the importance of applying an enhanced low-volatility approach which is selective and avoids buying defensive stocks which are expensive and have weak momentum.”

“Since 2006 we have selected low-volatility stocks with lower valuation and better momentum.

This enhanced approach has resulted in a strong performance and a current portfolio with relatively cheap low-volatility stocks,” Van Vliet concludes.

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

‘When low volatility is more expensive, it is especially important to take valuation into account’

Mount Rushmore

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DEDICATED FOLLOWERS OF FASHION Jack Neele and Andrew Cape Successful sailing means knowing which way the wind is blowing – a concept that is also followed by Robeco portfolio manager Jack Neele’s Global Consumer Trends Equities fund.

“By looking at the long-term trends we want to find out which way the wind is blowing, but over a longer timeframe,” says Neele. “If we are convinced we are sailing in the right direction, we then find those companies that have the majority of their revenues tied to that trend, in what we call ‘pureplay’ exposure to it.”

Cape. “Obviously you use the same electronics on each leg to collect and to interpret all the different weather data that we are getting from the Volvo Ocean Race organization. The temperature doesn’t really matter on what kind of equipment you use.

It’s about how you use the data.”

Avoiding the fads “It should be longer term because in the short term you can have things that only last a year, or fads that come and go. A trend is really a seismic shift in an industry that is here to stay, such as smartphones.”

‘During the crisis people were still using Facebook and Google’ Jack Neele

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A ‘trend’ for Team Brunel navigator Andrew Cape more simply means finding a wind that can sustainably propel the boat faster than the others.

In a global race, conditions vary enormously, from the searing heat and calmer seas of the Middle East, to the freezing conditions and giant waves of the Southern Ocean.

“But you have the same problem everywhere you are… you just want to know where the wind is blowing and what the weather is going to do,” says

While a racing yacht always wants to be first from the outset, Neele says that his fund prefers to play a waiting game to avoid buying into a fad. “We don’t invest in the hype stocks, or in the concept stocks, and not in at the beginning. We’d rather be in it a little bit later with a conviction that it’s an actual trend and is something that will persist over a longer time frame,” he says.

“So we’ll never be the first to invest in specific companies. When we do invest, at least we know that we’ll have some confidence or some clarity about the direction in which the industry is going, and therefore the direction of the company. That also gives us more visibility into revenue and profit growth and that means we can get very good returns with lower risk.”

“If you’re in a bit earlier, the returns can be huge if you’re right, but there’s also a lot more risk if things go wrong. Once we’ve found the trend we look for many companies that fit in with it. We invest in a basket of stocks that all play into that.”

Cape conversely has a short-term time horizon out of necessity. “Usually we can see only four days in the future, so that’s all you could plan for,” he says.

“You’re only able to plan for what you definitely know is going to happen - and that’s a lot of shortterm planning. And even then, sometimes the predictions don’t come true, so then we need to change the plans again. Sometimes you’re too late to change a plan on a new weather forecast, and then you could lose a lot of miles.”

Predicting the future While Cape has state-of-the art navigational equipment to see weather patterns, Neele relies more on weird and wonderful mystics and futurologists attending conferences to spot the newest trends.

“Twice a year, we have seminars where we invite

these trend-watchers, futurologists and these types of people to comment on what they see changing in the world,” says Neele. “We look to see whether our current invested trends are still valid, or whether we need to make changes. And we talk to a lot of companies which are investing in new products. If you look at Google for example, they’re now investing in self-driving cars and Google Glass.

Then there’s the Apple Watch and so on. Some of these products will fail, but we can see what direction the world is going.”

Growth of sharing services Neele says other trends have grown up through the growth of internet-based sharing services that can easily be accessed on the move. “Many young people don’t have a TV subscription because they’ll subscribe instead to Netflix or something on their laptop or tablet, and they don’t have a car because they’ll use Uber. That’s a new reality.”

“We also follow fashion. For example, people in western markets have not seen wage growth, and may be looking to save money. In the US, the cheaper clothing stores such as Dollar General are doing really well. There’s a dichotomy in that luxury goods sales are strong in emerging markets, while in developed markets it is the lower end that is doing better. Consumers are looking to save money, whereas in the past it was more like ‘hey, look what I have’.”

One fashion that will certainly be repeated in ocean races is the direction of it. In common with most circumnavigations, the Volvo Ocean Race runs eastwards around the world: “The prevailing winds generally blow from west to east – you sail this way

mostly with the wind from behind,” Cape explains.

“That’s why going from west to east is how the ‘round the world’ races always run. If you’re sailing the other way around you would sail mostly upwind and against the prevailing currents. That’s pretty uncomfortable, a rough ride and not the way to sail around the world.”

Neele says the collapsing oil price is not a trend.

“Oil is more of a cyclical benefit to incomes which hasn’t really kicked in yet,” he says. “When the oil price declines, people save some money at first, but they won’t immediately spend it. The economic textbooks say that it takes about nine months for people to see this as being sustainable, where they go out and spend the saved money. It’s starting to trickle down into consumer behavior, once they’ve seen a low oil price as sustainable.”

need to cross the line in Newport in first place. All the guys are highly motivated to go sail again.

Everything is possible.”

‘All the guys are highly motivated to go sail again.

Everything is possible’

Using cyclical theory Cyclical theory plays well in his portfolio, which is both US-centric and digitally focused. His biggest three investments are Facebook, Google and Apple.

“It’s very techy, but these are also the companies that are much less dependent on the economic cycle. During the crisis people were still using Facebook and Google, and were still buying more smartphones because they became much more important in people’s lives.”

The most important thing for Team Brunel now is to win the Volvo Ocean Race. The Abu Dhabi team has an impressive lead, but so did Dongfeng before it broke its mast and came last during the Itajai leg.

“It’s simple; we just need to win this leg… I don’t use other tactics because there is a nine-point gap with Abu Dhabi Ocean Racing,” says Cape. “We

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

Andrew Cape

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THE BRAVE NEW WORLD OF FINANCE Patrick Lemmens As the boats of the Volvo Ocean Race are reaching the coast of the ‘New World’, the global financial sector is coming to grips with a brave new world of its own. Long-term trends are changing the core of the financial industry and investors that can benefit. Patrick Lemmens, fund manager of Robeco New World Financial Equities, explains how he does it.

An investor first has to identify the most important structural, long-term trends in the myriad of changes that are going on. Lemmens has identified three main trends for his portfolio, which he calls Aging, Digital and Emerging Finance. These trends can cut across traditional (sub-) sectors.

As large parts of the world are faced with aging populations, demand for life cycle financial planning grows. As some pension schemes such as ‘final salary’ plans become unaffordable, it is increasingly important that people build enough savings to retire comfortably, and are able to pay for care and housing. “Companies that offer solutions to meet people’s pension/care/housing needs are interesting for us,” says Lemmens.

Financials are digitizing Like pretty much everything else, the financial sector is digitizing as well, which is transforming the competitive environment. First of all, global payments are changing: consumers are increasingly moving from paying with cash to paying with cards or electronically. Second, mobile payments are growing very rapidly. As a result, more and more financials

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are outsourcing their IT including even the front office operations. “As we do not confine ourselves to the traditional financial sector, we can also seize opportunities in the IT sector,” Lemmens says.

The third and last trend focuses on the growth of the global middle class. It is growing the fastest in emerging markets, though financial penetration is still very low. In developed markets Lemmens looks for financials that can grow by providing often basic financial services in an innovative way, or with limited competition.

“These three trends consist of many sub-trends,” Lemmens explains. “We want to have enough trend exposure to profit from growth if it materializes, but we also want to have some downside protection by investing in multiple, independent trends. An example of a sub-trend is the search for absolute returns. Here we invest in wealth managers with exposure to alternative assets, such as KKR, Blackstone, Carlyle and Oaktree. Increasing demand for ‘smart beta’ solutions, which are based on indices that take advantage of systematic market inefficiencies, and Exchange-Traded Funds

(ETFs) is another sub trend, which is illustrated by our investment in WisdomTree.”

term interest rates were to start rising gradually, the upside for the sector would even increase,” Lemmens concludes.

Diversification is crucial Broad diversification is crucial in financials. “There are factors unique to this sector such as the unpredictability and influence of regulators, as well as the risk and impact of legal issues,” says Lemmens. “Also, it is impossible to fully grasp and predict the balance sheet and cash flows developments of most financials in which we invest.

There is no full disclosure and even if there were, it would be impossible to do a due diligence on an entire balance sheet of, say, 1 trillion euros.”

Lemmens is most optimistic about emerging market banks and life insurers. “For banks as well as insurers regulation continues to play an important role but we do expect this to become less relevant in the next six months,” he says.

Also interesting are companies exposed to electronic or mobile payments and financial IT services. For the next 12 months, he expects a return in the low teens of percent. “And if long-

‘We want to have

some downside protection by investing in multiple, independent trends’

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

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THE MAST-ER PLAN FOR MENDING BOATS Tom Touber It has been a punishing Volvo Ocean Race, with over half of the boats damaged so far – two of them so seriously they were unable to continue. But that’s just what ocean sailing is all about, says the race’s Chief Operating Officer, Tom Touber.

The Chinese Dongfeng race team had to pull out when their mast snapped 200 nautical miles west of Cape Horn. The women’s SCA team suffered shredded sails, plus some navigational equipment problems, while Team Brunel had some mast issues that dogged their progress. And Denmark’s Team Vestas has not recovered from hitting a reef in the Indian Ocean.

Argentine port at the tip of South America was too remote for a new one to be transported in good time. “It wasn’t the first time we were in Ushuaia – we know the harbor master and the people there very well,” says Touber. “In every Volvo Ocean Race there has been some issue where a boat has had to pull into Ushuaia. It’s always been an integral part of this race.”

Managing stakeholders – including potentially frightened families – can be a bigger problem than actually fixing the boats, says Touber. “Most of the time we don’t have trouble repairing the boat, or covering the technical things; it’s dealing with sponsors, or PR, media, family and friends that are panicking. Managing that side of it is the most challenging.”

“It’s the toughest ocean race in the world, so the fact that things break is part of the game,” says Touber, who is responsible for keeping the race running, sometimes against all the odds. “It’s all about risk management – we have spares, contingency plans and all kinds of systems in place to reduce risks, but the risks are still there.”

Keeping up with events 24/7 can literally mean sleepless nights. “The race always means getting woken up in the middle of the night with some disaster in front of you, and when this happens you always think at first that this is the end of the world,” says Touber. “And then we regroup with the management around us and we find a solution.

There is always a contingency plan.”

Surviving death rolls and wipeouts

Better logistical plan “In this edition we built stronger boats, and we had a better logistical plan. For example, when Dongfeng’s mast snapped, we had masts strategically placed around the world so we could keep the cost of replacing it down.”

The Dongfeng mast was repaired in Ushuaia, as the

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“We have some very creative and skillful people who can deal with these issues. It’s very similar to what happens in business life. The stock market for example can over-react, but then the specialists know what’s happening in reality, and they can far better judge what the impact of certain events actually will be. It’s the same for us.”

So after seven months and 20,000 nautical miles at sea, how are the boats holding up to the pressures? Some of the dangers facing the crews are ‘death rolls’, where the wind tips the boat over onto one side, dragging the mainsail through the water, and ‘wipeouts’, where a giant wave completely immerses the whole boat. Both can be dangerous, causing crew to fall into the water, or in the worst case, capsize.

“VOR boats have been doing really, really well,” says Touber. “A few boats suffered wipeouts during the race, but most did not. It has everything to do with two things; experience and the appetite for taking risks. Some very experienced teams just push

it over the limit. It still remains the call of the sailing team and the skipper how much risk they want to take to win or lose the race.”

“Robeco can be very proud of Team Brunel, because they found the right balance. They’ve had no problems at all apart from some minor maintenance issues, but have not done anything that has endangered the crew, and that fits in very well with the profile of the sponsor.”

‘It’s all about risk management – we have spares, contingency plans and all kinds of systems in place’

The boatyard in Itajai, Brazil

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VOLVO OCEAN RACE Facts & Figures – This is the 12th edition of the race, and the 5th under the name Volvo Ocean Race – The Netherlands and Sweden (Volvo’s home country) have the strongest history in the race in terms of the number of teams and sailors taking part – 7 teams are in this edition, including the first women’s team (Sweden) in over a decade – Each boat has 8 sailing crew and one on-board reporter – Some 22,000 corporate guests will be invited at stopovers and other hospitality events by sponsors of the race and the teams – The total TV audience is expected to be 1.65 billion people, on a par with the Olympics and World Cup The teams in the race are: – The Netherlands: Team Brunel – Abu Dhabi: Abu Dhabi Ocean Racing – China: Dongfeng Race Team – Sweden: Team SCA (all-female) – America/Turkey: Team Alvimedica – Spain: Team España – Denmark: Team Vestas Wind The other sponsors of Team Brunel are: – Brunel: project management, staff secondment and consultancy – Schouten Global: training and development – Moduleo IVC: premium vinyl flooring – Sub-sponsors: Gaastra (teamwear); Ernst & Young (accountancy)

‘There’s never a theme in the portfolio, or much attention paid to macroeconomic factors’ Boston

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FINDING THE RIGHT WAVE POINTS IN EQUITIES Chris Hart They say that a rising tide floats all boats – but for Chris Hart, it’s about finding the right wave points in his brand of active fund management.

His Global Premium Equities fund looks for companies that exhibit three key characteristics, or ‘circles’: attractive valuations, strong fundamentals, and business momentum. When a company comes onto the radar displaying these ‘three circles’, it can be bought.

This enables him to build a portfolio that is purely based on favored companies, rather than following what the rest of the market is doing. He says stocks generally have benefitted from quantitative easing in western markets, but this does not isolate those companies that can outperform the others.

“It really all comes down to individual securities,” says Boston-based Hart. “There’s never a theme in the portfolio, or much attention paid to macroeconomic factors. The portfolio is constructed on a security by security basis, individually, through the three circle lens, and so all positioning is driven by bottom-up analysis.”

“It would be similar to having to tack to get to your next wave point. It’s a series of tactical decisions on an individual security basis to have a well-

constructed three circle portfolio and get over the finishing line.”

Looking for earning growth “The first thing we look for is inexpensiveness; once we’ve found that we focus on the fundamentals and the earnings growth. We don’t sit and think ‘we want to buy technology or industrials’, or ‘we want to be in Europe or Japan’. If we find a new energy name that we like, then it’s a case of which one out of the other energy names that we own do we like less, and sell it.”

Trading in the portfolio is usually caused by a company acquiring or losing one or more of the three circle characteristics, but deciding to sell depends on several variables. “The top half of the portfolio tends to stay static as full three-circle stocks with strong earnings compounders and consistent valuation support, and the bottom half tend to be names where valuations are stretched and we have to sell them. They tend to be names whose risk/return profiles result in them being sold.”

Changing course when the undercurrents change has paid off in the portfolio. “The success we’ve had this year really started last year when we repositioned the fund away from large cap US names into more mid cap European and Asian names,” he says. “The biggest change was a reduction in our health care exposure because US health care services became somewhat similar to the staples trade, fundamentally developing to be quite stable, high quality companies, but fully valued.”

“So we reduced healthcare from 20% of the portfolio to 11%, and that capital was pretty much sprinkled outside the US, into Europe and the UK and more interestingly into Asia, which has been a good place to be over the past two months. We’re now the most euro-centric than we’ve been over the last year or so.”

Why size matters Finding the right size for individual stakes is also important: invest too much and the fund is then at risk if the company misses an earnings target.

“The sizing and positioning is the art of portfolio

management,” says Hart. “It comes down to the degree of valuation support and the degree of valuation discrepancy in individual investments.

Then it’s a case of how much confidence we have in the business fundamentals.”

So what storm clouds lie ahead? Hart doesn’t pay much attention to macro factors, but they can make an impact on the whole market. “We’re trying to find those pockets where there is a valuation discrepancy, and large cap Europe reflects earnings improvement that has been driven by QE, but I’ve not seen any fundamental improvement in underlying earnings to justify the valuations.”

This publication is intended to provide investors with general information on Robeco’s specific capabilities, but does not constitute a recommendation or an advice to buy or sell certain securities or investment products.

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Robeco Coolsingel 120 3011 AG Rotterdam The Netherlands T +31 10 224 1 224 E robeco@robeco.com I www.robeco.com

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