Robeco Lux-o-rente Bond Fund

Could you share your opinion on the Rabodirect's [broken link removed] please? Do you think it is a good alternative to a deposit account? Do you think now is a good time to put money into it?

[FONT=&quot]This is a really good question.
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[FONT=&quot]Investment risks and the returns that investors demand as compensation for bearing these risks are directly related – there is no such thing as a “free lunch” in investing. [/FONT]

[FONT=&quot]Currently deposit savings rates in Ireland have to be higher on average than the ECB rate might suggest in order to attract savers and offer some compensation for the higher risks associated with savings institutions in Ireland.[/FONT]

[FONT=&quot]I therefore recommend that cash that is not required for immediate or planned future consumption should indeed be invested in a diversified portfolio of Global Bonds rather than in an Irish savings institution since the result is greater protection against inflation, lower default risk and a higher expected return than cash deposits.[/FONT]

[FONT=&quot]Bond Funds (Also known as Gilts or Fixed Interest Securities)[/FONT]
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There are three main subsets of the Bond asset class:[/FONT]
[FONT=&quot]Government Bonds[/FONT]
[FONT=&quot]Corporate Bonds[/FONT]
[FONT=&quot]Inflation Linked-Bonds[/FONT]

[FONT=&quot]Two factors explain the majority of returns from a fixed interest portfolio as follows:[/FONT]

[FONT=&quot]Credit Risk - The quality factor describes how low-grade obligations have higher expected returns than high-grade obligations. [/FONT]
[FONT=&quot]Duration risk - The term factor describes how long-term bonds have higher expected returns than short-term bonds. [/FONT]
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However, these premiums have not been large enough historically to reward the additional risk. [/FONT]
[FONT=&quot]If we look at the return and volatility of bond returns in the USA since 1926 to May 2009 the following average returns have been observed:[/FONT]
[FONT=&quot]
Investment..................................Average Annual Return........Volatility[/FONT]
[FONT=&quot]US Treasury Bills..............................3.68%pa................................0.87[/FONT]
[FONT=&quot]US 5 Year Notes ...............................5.35%pa................................4.42[/FONT]
[FONT=&quot]Long Term Government Bonds .....5.48%pa.................................8.25[/FONT]
[FONT=&quot]Long Term Corporate Bonds......... 5.72%pa.................................7.47

[/FONT] [FONT=&quot]Source: “Stocks, Bonds, Bills, and Inflation” Chicago: Ibbotson and Sinquefield,[/FONT]
[FONT=&quot]
Therefore, for the optimum trade-off of risk and return, an investor in bonds should invest in short maturity and high credit quality. [/FONT]
[FONT=&quot]With global bonds, there is also the concern of foreign currency exposure. Exchange rates move unpredictably. Currency exposure tends to increase the volatility of a fixed interest portfolio, while there is no reliable evidence to suggest that the expected return of exchange rates (assuming monies are invested in short-term currency deposits) is generally anything other than zero. Therefore, currency exposure should be hedged in global bond portfolios. [/FONT]
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So, how does the Robeco Lux-o-rente Bond Fund D EUR Acc stack up?[/FONT]
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Management Fees[/FONT]
[FONT=&quot]The annual management charge is 0.7%pa and from a study of the prospectus, there is also service fee of 0.08%pa [/FONT]
[FONT=&quot]According to Morningstar, the Total Expense Ratio for this fund is 0.82%pa. To be fair this isn’t bad for a bond fund.[/FONT]
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Investment strategy[/FONT]
[FONT=&quot]According to the Morningstar Fund Fact sheet, the fund is 57.5% invested in long-dated bonds.[/FONT]
[FONT=&quot]As can be seen above, on average, this will expose an investor to a higher degree of risk and volatility but not offer a higher expected return as compensation for these risks.[/FONT]
[FONT=&quot]
I would recommend an alternative fund[/FONT]
[FONT=&quot]The fund I would recommend has an audited Total Expense Ratio of 0.48%[/FONT]
[FONT=&quot]It is a globally diversified portfolio of short-dated high credit bonds. It is € currency hedged and a regulated UCITS fund.[/FONT]
[FONT=&quot]
Monthly returns to May 31st 2009[/FONT]
[FONT=&quot]1 Month 0.64%[/FONT]
[FONT=&quot]3 Months 1.10%[/FONT]
[FONT=&quot]Since inception Jan 25th 2007 4.07%pa[/FONT]
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Annualised standard deviation (a measure of volatility) is 1.22% compared to 4.78% for the Robeco fund.[/FONT]
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For more details please contact me. The minimum investment is €100,000.[/FONT]
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Conclusion[/FONT]
[FONT=&quot]Remember that investment risk and expected returns are related. In order to achieve a higher average return, it is necessary to take a higher average risk. If savers are looking for an alternative to a bank account, a fund heavily invested in long-dated bonds will not offer the protection against short-term falls in value.

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Marc, thank you for a comprehensive answer. I am looking to put aside much less than €100k, but maybe someone else will be interested.