Kempen Lux Income Fund Class LR

Profile

Kempen International Funds SICAV – Kempen (Lux) Income Fund (the Fund) is designed to achieve current income and capital appreciation over the medium-term by investing primarily in a diversified portfolio of fixed income securities. The Fund employs a top down macro perspective along with bottom-up security selection, with a focus on downside protection.

The Fund does not have a benchmark. Attention: it is envisaged that this share class will be closed for further subscriptions once the Fund (all share classes combined) reaches a size of € 300 million. At the launch of the fund on 7 August 2017 this share class carried a discounted management fee for a maximum period of 3 years to facilitate the initial growth of the Fund, the current discounted management fee is 20 bps. The Board of Directors will decide on the conditions and future of this share class once the 3 years period has lapsed i.e. in July 2020.

Management team

Roelof Salomons, Ivo Kuiper, Kim Lubbers, Hans Kamminga

Performance per 2019-07-31 (rebased)

No chart data available

Performance per 2019-07-31

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  Fund
1 month 0.6 %
3 months 1.1 %
This year 3.1 %
2017 -0.0 %
2018 -2.6 %
1 year (on annual basis) 1.7 %
Since inception (on annual basis) i 0.3 %
Performance is shown after deduction of ongoing charges. The value of your investments may fluctuate. Past performance provides no guarantee for the future. (Partial) hedging the interest and credit exposure, results in a lower yield for the portfolio.
More information can be found on the documents page of this fund

Key figures

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Total fund size
EUR 72.25 M 2019-07-31
Share class size
EUR 8.23 M 2019-07-31
Number of shares
328,109 2019-07-31
Net Asset Value i
EUR 25.06 2019-08-15

Fund characteristics per 2019-07-31

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  Fund
Number of holdings 729

Market developments per 2019-07-31

The downward trend in bond yields persisted in July. German 10-year government bond yields declined to a new record low of -0.44%, while their US counterparts remained reasonably stable in July. This can largely be attributed to worse than expected economic indicators and the more expansionary-minded tone adopted by central banks. Economic indicators in the Eurozone continue to be worse than expected. Manufacturing data from Germany and corporate sentiment have now dropped to six-year lows.

The European Central Bank (ECB) decided to keep its policy interest rates unchanged, but it has paved the way for further stimulation. It announced that interest rates would remain at their current level or even lower until mid-2020. The market expects the ECB to cut its rates by 10 basis points in September. Furthermore, the ECB is to explore other stimulatory options, such as restarting its bond-buying programme, in order to stop inflation forecasts falling further. Spreads on corporate bonds, European government bonds and government-related paper tightened in response to this news. Constructive talks between Italy and the European Commission on Rome’s fiscal policy were an additional bonus for European investors. The Italian government has again adjusted its budget for 2019 and this removes the threat of an excessive deficit procedure that was hanging over Italy’s head.

The US central bank (Fed) cut its policy interest rate by 0.25% on 31 July and announced it would no longer reduce its balance sheet from August. Yet there were investors who had hoped for a cut of 0.50%. Powell described the move as a mid-cycle adjustment, which suggests it is not the first in a series of cuts. Moreover, the decision was not unanimous. Two central bankers voted against and had argued in favour of keeping the policy interest rate unchanged.

After receiving two-thirds of the votes, Boris Johnson was elected as the new leader of the UK’s Tory party and therefore prime minister. He needs to get Brexit done in just over 100 days. He is clearly pro-Brexit, but his economic and tax policies once the UK has left the European Union are less well defined. Johnson’s appointment increases both the risk of a hard Brexit and of another general election.

Portfolio developments per 2019-07-31

The Kempen Income Fund noted a performance of 0.6% in July. The fund profited from the tighter spreads on corporate bonds. Spreads on government-related paper also contracted. The decline in German government bond yields had a positive impact on the performance. The fund also profited from its positions in Spain, Austria and Finland and made a small loss on the position in Ireland. Inflation forecasts were pushed upwards after the ECB announced at its meeting that it would apply a symmetrical inflation target rather than inflation of just below two percent. This contributed positively to the performance.

At individual company level, there were positive contributions from the overweights in AB Inbev, Fiserv, Fidelity National Information Services, Heidelberg Cement, Abertis, Telecom Italia, Adler Real Estate, Telefonica, Volkswagen, Intesa Sanpaolo and Tank & Rast, as well as from the underweights in Chemours, Loxam and Owens-Illinois. In contrast, the overweights in Morgan Stanley, Origin Energy, Huntsman, IHO Verwaltungs and Barclays and the underweights in Wind, Netflix, Salini Impreglio, Orano and UniCredit contributed negatively.

The portfolio is positioned for higher bond yields and tighter spreads. The much worse than expected growth forecasts and the willingness of central banks to pursue expansionary monetary policies were not our central scenario, but these have had a significant impact on the financial markets. A great deal of negative news has already been priced in with the interest rate cuts of 20bps from the ECB and 100bps from the Fed. The risk of substantially higher bond yields has been shifted to a future date. A number of positions, set up to profit from the tighter spreads versus Germany, are close to the levels at which we are inclined to take profit.

Performance per 2019-07-31 (rebased)

No chart data available

Performance per 2019-07-31

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  Fund
1 month 0.6 %
3 months 1.1 %
This year 3.1 %
2017 -0.0 %
2018 -2.6 %
1 year (on annual basis) 1.7 %
Since inception (on annual basis) i 0.3 %
Performance is shown after deduction of ongoing charges. The value of your investments may fluctuate. Past performance provides no guarantee for the future. (Partial) hedging the interest and credit exposure, results in a lower yield for the portfolio.

Dividends

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Distributing
No

Maturity profile (2019-07-31)

23.5 %
7-10 year
21.3 %
5-7 year
19.1 %
> 10 year
17.8 %
3-5 year
16.0 %
0-3 year
2.1 %
Cash
0.3 %
Other
Total
100 %

Sector allocation (2019-07-31)

37.0 %
Corporates
30.7 %
Government
19.1 %
Financials
10.5 %
Semi-Government
0.3 %
Money Market Funds
0.2 %
Asset-Backed Loans
0.0 %
Covered Bonds
2.1 %
Other
Total
100 %

Rating allocation (2019-07-31)

9.1 %
AAA
17.5 %
AA
27.4 %
A
24.0 %
BBB
14.2 %
BB
0.5 %
B
5.3 %
Not Rated
2.1 %
Cash
Total
100 %

Top 10 holdings (2019-07-31)

2.7 %
1.850% Frankrijk I/L 2011-27
2.3 %
1.500% Temasek 2016-28
2.2 %
1.125% Corp Andina de Fomento 2018-25
2.0 %
0.750% Nederland 2018-28
1.9 %
0.500% Finland 2016-26
1.6 %
3.500% Oostenrijk 2005-21
1.5 %
0.500% Finland 2019-29
1.5 %
0.500% Frankrijk 2016-26
1.5 %
2.625% Letland 2014-21
1.4 %
1.350% Ierland 2018-31
Total
18.5 %

Ongoing charges

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Management fee i
0.20 %
Service fee i
0.10 %
Taxe d'abonnement i
0.05 %
Indirect costs i
0.05%-0.10% (estimated range)
Expected ongoing charges i
0.40% - 0.45% (estimated bandwith)

Other costs

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Upward swing factor i
0.10 %
Downward swing factor i
0.10 %

Share class details

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Share class
LR
Investor type
Private
Distributing
No
Duration hedged
No
Investment category
Multi Asset Strategies
Inception date
2017-12-21
Domicile
Luxembourg
May be offered to all investors in
Luxembourg, Switzerland, 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
LU1626447426

Kempen's vision & mission

Kempen Capital Management is an asset manager that believes in stewardship and investment focusing on the long-term for the benefit of all stakeholders. Value creation is at the heart of the services we provide to our clients. We believe that being an engaged shareholder on environmental, social and governance (ESG) issues and retaining a long-term focus, is critical to helping our clients to preserve and create sustainable wealth that has positive real world impact and economic returns.

Kempen wide approach to responsible investment

We are committed to create sustainable alpha. The four pillars of our ESG-policy are:

  • ESG integration: Ensuring sustainability risks and opportunities are adequately considered in our investment analysis and processes.

  • Exclusion & avoidance: Not investing in companies involved in controversial activities or conduct.

  • Active ownership: Being responsible stewards of our clients’ capital and using our influence through engagement and voting to improve corporate behaviour on specific ESG issues and achieve positive change

  • Positive impact: Investing with an objective to achieve positive real world outcomes and impact, such as contributing to the UN Sustainable Development Goals.

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To put our mission and vision into practice we engage with our investee companies on a wide array of strategic, financial, and ESG topics. As an active owner we use our influence to improve our investee companies’ ESG performance. This helps us address some of the most pressing and important sustainability issues facing business and the world. Our focus themes for engagement are: human rights, labour rights, climate change and governance.

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Through collaboration with other investors and industry think tanks we contribute to the development of principles and standards of corporate responsibility both at sector levels, as well as investee company level.

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Our full voting records are available here.

Our fund approach to responsible investment

Kempen’s ESG policy is fully implemented in our fund’s investment process across the three relevant pillars of: Exclusion, ESG integration and Active ownership

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ESG is fully integrated into the investment process of the Kempen (Lux) Income Fund, with analysis undertaken both pre-investment and as part of our portfolio monitoring activities. Portfolio managers perform an in-depth analysis of ESG data, and ESG risks and opportunities are taken into account when selecting and monitoring governments, government related issuers and corporates.

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1. Exclusion

In line with the general Kempen policy, the Kempen (Lux) Income Fund excludes all countries and companies of the KCM exclusion- or avoidance list. Companies or countries on these lists are either involved in the production of controversial weapons, derive a significant portion of their revenues from the production or distribution of tobacco, or have been involved in serious controversies.

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2. ESG integration

We flag “low” performing countries and companies. The portfolio managers of the Kempen (Lux) Income Fund and the underlying funds, assesses the materiality of the ESG issue and its implications for the credit profile of the company or country. If an issue is deemed material, our first objective is to engage on the issue. If we can conclude from the engagement that the ESG concerns are not structural and if the company is willing to improve, we make an adjustment in the determination of the relative value of the company’s securities. In severe cases where we do not see any prospect of improvement we forego investment in the country or company.

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The fund performs a quarterly screening using the database MSCI ESG research. The Responsible Investment team conducts the screening, and a review of the ESG ratings of bonds in the portfolio along with discussions on ESG rating developments are conducted by the team.Â

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The following items are discussed on a quarterly basis:

• A review of the ESG ratings of bonds in the portfolio;

• A discussion on any developments / changes in the ESG ratings;

• Screening for controversies using MSCI ESG research;

• Excluding countries and companies based on UN Global Compact criteria;

• Excluding controversial weapon producers.

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Finally, the Kempen (Lux) Income Fund prefers Green bonds rather than a ‘normal bond’ if two bonds have the same risk/return characteristics. We are an active player in the market of green bonds and we have a green bond policy which outlines the guidelines we adhere to defining a green bond.

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3. Active ownership

Where relevant our fund will attempt to use its ownership stakes to engage with investees on ESG issues. For example, in 2018 the fund was part of an engagement with Bayer, following their acquisition of Monsanto. Through the acquisition, Bayer inherited several significant controversies in the field of genetically modified organisms (GMOs). The goal of the engagement is to get a formal and written statement from the company which states that they will not sue small holder farmers for the unintended use of Bayer licensed GMO crops. It also asks the company to set a target for the number of farmers that receive education on their crop protection products.

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In addition the fund has ongoing engagement cases with Volkswagen on its company culture, Cez on the use of thermal coal, Glencore on climate action and Huntsman on ESG disclosure.

ESG Report