Kempen Lux Euro Sustainable Credit Fund - Class AN

Profile

Kempen International Funds SICAV - Kempen (Lux) Euro Sustainable Credit Fund (the Fund) invests primarily in credits that have an investment grade rating (of minimal BBB-) and are denominated in Euros. In addition, these companies must comply with strict sustainability criteria. The Fund may invest a small part in credits that are not included in the benchmark.

The benchmark, the Markit iBoxx Euro Corporates Index, only includes bonds with an investment grade rating. The Fund aims to earn a higher total long term return than the benchmark by implementing an active investment policy. In order to achieve this, a diversified portfolio is constructed and investment risks are continuously monitored. Investments are selected on the basis of extensive analysis of the terms and conditions of the bond issues.

In the interest of the shareholders it has been decided to soft open the Fund as per 28 June 2018. As per June 2018 the Fund will continue to accept daily inflow below EUR 10 million from all investors. For investments greater than EUR 10 million please contact the Fund’s relationship manager. Redemptions will still be possible. More information about the soft open can be found in the Notice to shareholders in the tab Documents.

Management team

Alain van der Heijden, Rik den Hartog, Harold van Acht, Sipke Moes, Luuk Cummins, Pim van Mourik Broekman, Quirijn Landman, Marco Zanotto

Performance per 2019-03-31 (rebased)

No chart data available

Performance per 2019-03-31

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  Fund Benchmark
1 month 1.5 % 1.4 %
3 months 3.2 % 3.2 %
This year 3.2 % 3.2 %
2018 -0.4 % -0.8 %
Since inception (on annual basis) i 2.8 % 2.4 %
Performance is shown after deduction of ongoing charges and including the reinvestment of dividend that has been paid out. The value of your investments may fluctuate. Past performance provides no guarantee for the future.
More information can be found on the documents page of this fund

Key figures

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Total fund size
EUR 223.97 M 2019-03-31
Share class size
EUR 0.06 M 2019-03-31
Number of shares
2,500 2019-03-31
Net Asset Value i
EUR 25.75 2019-04-18

Fund characteristics per 2019-03-31

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  Fund Benchmark
Number of holdings 246 2455
Duration i 5.1 5.0
Yield to maturity 1.0 % 1.1 %
Weighted rating BBB+ BBB+

Market developments per 2019-03-31

In March, the spread on the iBoxx Euro Corporate Index tightened by 5 basis points to 140 basis points above the government bond curve. The index earned an absolute return of +1.39%. German 10-year government bond yields closed March at -0.07%, a decline of 25 basis points compared to the end of February.

The sharp decrease in government bond yields in March was mainly driven by a combination of worse-than-expected economic data and signals from central banks that they are planning to loosen monetary policy.

Economic growth figures continue to be worse than expected, especially in Europe. Indicators for industrial activity in particular have displayed a downward trend for several months now. In Germany, for instance, the PMI figures for industrial production in the first quarter of 2019 averaged 47.1. This is significantly lower than the average of 51.8 in the fourth quarter of 2018. Although economic growth remains positive in Germany, mainly thanks to robust consumer spending, the situation in Italy is rather alarming. Economic indicators in Italy are pointing to a possible recession. It is worth noting that confidence among Italian businesses has already dropped to levels last seen in 2015.

In spite of the improved sentiment in the equity and corporate bond markets in the first two months of the year, the US central bank felt it was still necessary to convey an even stronger signal to investors that a further tightening of monetary policy is highly unlikely. The Fed will now stop reducing its balance sheet in September. Moreover, the Fed indicated that there would be no further interest rate hikes this year. The ECB has in turn announced a new TLTRO programme that allows banks to borrow from the central bank at very attractive rates. This will make banks, especially the smaller ones, less dependent on funding themselves in capital markets. At the same time, the ECB noted that it was aware of the negative impact that the extremely low interest rate environment is having on the profitability of the European banking system. The practical manner by which the ECB intends to boost the profitability of European banks remains unclear, however.

The decision by Anglo-Swedish pharmaceutical company AstraZeneca to issue shares worth GBP2.7 billion was the most recent example of a company proactively attempting to improve its creditworthiness in a bid to prevent Moody’s and S&P downgrading its ratings. Similarly, Fidelity National Information Systems plans to finance approximately 90% of its USD43 billion acquisition of Worldpay using shares, and in doing so maintain its BBB and Baa2 ratings from S&P and Moody’s respectively.

The supply of new bonds stood at EUR47 billion in March, a decrease of about 4% versus February, and almost the same as a year previously. Non-financial sector companies issued EUR30 billion in new bonds last month, while financial sector companies issued EUR17 billion in new bonds. New bonds totalling EUR146 billion were issued in the first three months of this year, about 13% higher than the same period last year.

Portfolio developments per 2019-03-31

The Fund aims to avoid investments that act in breach with the VFI Richtlijn Financieel Beheer Goede Doelen (VFI Directive Financial Management Charities). De VFI Directive consists of basic guidelines and additional guidelines. The basic guideline advises institutions to investigate investments on violations of among others human rights, corruption and protection of the environment. The additional guideline is developed for organisations that want to apply stricter sustainability criteria in the investment policy. This directive includes further exclusions of companies involved in for example nuclear power, alcohol, tobacco, laboratory animals, adult entertainment and genetic modification. Each quarter, the investment universe is screened for violation of the VFI Directive. This screening is conducted based on the MSCI ESG Research database.

During the month the portfolio’s sensitivity to market trends varied between 92% and 103%. The portfolio therefore held an underweight to neutral positioning in terms of market risk.

Our positioning in the industrial goods, healthcare and insurance sectors performed relatively well in March. In contrast, our positioning in the utilities, chemical and telecom sectors contributed negatively. Our liquidity position (in the shape of cash and government bonds) had a negative impact.

At individual company level, positive contributions came from the overweights in DS Smith, Medtronic, Atos, Sky, Terna and Booking Holdings. In contrast, the overweights in Huntsman Corporation and Alliander, as well as the underweights in ING Group and Banco Santander, contributed negatively to the return.

In March, the Fund participated in new bond issues by Medtronic, Telefonica, Danske Bank, Marsh & McLennan, Abertis, Schaeffler and CNH Industrial.

The industrial conglomerate CNH Industrial, mainly known as a manufacturer of agricultural tractors and combines under the New Holland, Case and Steyr brands, is viewed as the absolute ESG leader in its sector. This reflects both the emphasis it places on improving the safety of its personnel, as well as the reduction in VOC emissions and toxic waste in its manufacturing processes. The truck division of CNH Industrial, Iveco, also is a leader in the production of (bio) gas engines. These engines can significantly improve air pollution levels in urban areas compared to their diesel counterparts.

Outlook
The material tightening of spreads since the start of this year has led to a decrease in the number of interesting investment opportunities. Combined with our concerns about the slowdown in global economic growth, we will maintain our defensive positioning.

Performance per 2019-03-31 (rebased)

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Performance per 2019-03-31

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  Fund Benchmark
1 month 1.5 % 1.4 %
3 months 3.2 % 3.2 %
This year 3.2 % 3.2 %
2018 -0.4 % -0.8 %
Since inception (on annual basis) i 2.8 % 2.4 %
Performance is shown after deduction of ongoing charges and including the reinvestment of dividend that has been paid out. The value of your investments may fluctuate. Past performance provides no guarantee for the future.

Dividends

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Distributing
No

Maturity profile (2019-03-31)

Fund
Benchmark
26.3 %
5-7 year
20.2 %
23.3 %
3-5 year
27.4 %
20.5 %
7-10 year
18.0 %
18.3 %
0-3 year
26.5 %
7.7 %
> 10 year
7.9 %
3.8 %
Cash
0.0 %
Total
100 %
100 %

Sector allocation (2019-03-31)

30.0 %
Banks
17.3 %
Consumer Goods & Services
9.4 %
Utilities
7.8 %
Industry
7.5 %
Telecom & Technology
7.0 %
Financial Services & Real estate
6.0 %
Health Care
4.7 %
Insurance
3.3 %
Other
2.7 %
Sovereign bonds
2.1 %
Basic Materials
1.5 %
Energy
0.7 %
Asset Backed Securities
Total
100 %
The cash position is included in ‘Other’.

Rating allocation (2019-03-31)

Fund
Benchmark
2.8 %
AAA
0.5 %
5.2 %
AA
11.0 %
37.0 %
A
39.1 %
44.4 %
BBB
49.5 %
4.1 %
BB
0.0 %
2.7 %
Not Rated
0.0 %
3.8 %
Cash
0.0 %
Total
100 %
100 %
The rating allocation of the Fund is based on the Bloomberg Composite method. The rating allocation of the benchmark is based on the rating allocation used by provider Markit iBoxx.

Top 10 holdings (2019-03-31)

2.2 %
2.875% Equinor 2013-25
2.0 %
0.500% Duitsland 2017-27
1.8 %
1.500% Enexis 2015-23
1.5 %
0.736% Bank of America frn 2017-22
1.4 %
3.875% Eurogrid 2010-20
1.3 %
2.000% Renault 2019-24
1.2 %
1.375% DS Smith 2017-24
1.1 %
1.750% Atos 2018-25
1.1 %
1.125% Deutsche Bahn 2019-28
1.0 %
1.375% Tesco 2018-23
Total
14.7 %

Ongoing charges

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Management fee i
0.32 %
Service fee i
0.15 %
Taxe d'abonnement i
0.05 %
Expected ongoing charges i
0.52 %

Other costs

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Upward swing factor i
0.20 %
Downward swing factor i
0.20 %
The swingfactor is applicable if the sum of in and outflow (end trading day) is more than a pre defined percentage ( the so called ‘threshold’) of the fund size. The level of the threshold 1%. As of 1 January 2018 the swing factor has been adjusted from 0.25%/0.25% to 0.20%/0.20%.

Share class details

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Share class
AN i
Investor type
Private
Distributing
No
Benchmark i
Markit iBoxx Euro Corporates Index
Duration hedged
No
Investment category
Credits
Universum
European credits
Inception date
2018-09-20
Domicile
Luxembourg
May be offered to all investors in
France, Luxembourg, The Netherlands
UCITS status i
Yes
Status
Open-end i
Base currency
EUR
Share class currency
EUR
Management company
Kempen Capital Management N.V.
Depositary and custodian
J.P. Morgan Bank Luxembourg S.A.

Tradability

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Minimum subscription
Initial subscription €1
Listed
no
Subscription/Redemption Frequency
Daily
ISIN i
LU0979490777

KCM Vision

Kempen Capital Management is an asset manager with a long-term investment approach. We strongly believe in engaged shareholdership that benefits all stakeholders. As a long-term responsible investor, we firmly believe that active ownership and shareholder engagement contribute to positive change across the board.

Our KCM wide approach to responsible investment

To put our vision into action we engage with our investment targets on a wide array of strategic, financial, environmental, social and governance (ESG) topics. Our long-term investment worldview paired with thorough analysis and an experienced and diverse ESG team allow us to use both voting and engagement as means to consistently encourage positive change. Through this process of constructive engagement, we are able to contribute to the development of principles and standards of corporate responsibility within companies that we invest in. Our full voting records are available here.

Our fund approach to Responsible Investment

The Kempen (Lux) Euro Sustainable Credit Fund has a more strict ESG process than other in-house credit funds. In addition to exclusion of companies that are on the general KCM exclusion list, it excludes companies that have violate the UN Global compact or the additional ethical guidelines, such as companies associated with nuclear energy, coal, alcohol, tobacco, adult entertainment and gambling. Furthermore, besides excluding companies associated with the production of controversial weapons, our definition includes any sort of military weapons.

An engagement approach is chosen for companies that are involved in GMO, factory farming, animal testing or if less than 5% of their revenue is derived from the production of fur or fur products.