House View – November 2021

House View

House View

November 2021

5 minutes reading time

 

Credit Markets

November marked a turbulent month for financial markets given the emergence of the Omicron variant of Covid-19.  Markets saw a major reaction on 26th November after the news broke, with some of the biggest daily moves of the year so far taking place. Equities slumped across the world, bond yields fell back and there were sharp swings in other asset classes too. EM credit markets have also suffered with total return prices down 1,5% for the global Emerging Market sovereigns and 2% for Europe in USD terms. In Europe, actually more idiosyncratic moves were driving markets as the tension between Ukraine and Russia has sparked up once again and in Turkey the currency crisis is still ongoing with the Turkish lira now down 45% against the USD since the start of the year.

In November, the annualized inflation have risen above 7% despite the interest rate hike cycles. Price increases are likely to peak this month and then gradually start to decline from December. At the November policy meeting, the rate hike cycle continued, with a 30 basis point tightening, leaving the base rate currently at 2.1%. However, due to recent risks, the one-week deposit tender rate has again diverged from the base rate, rising to 2.9% by the end of the month. Thus, the effective rate increase for the month of November was 110 basis points. The Monetary Council also changed the interest rate range to continue the rate hikes, raising the lower bound by 45 basis points and the upper bound by 105 basis points. In order to tighten interbank forint liquidity, the foreign exchange swap facility providing forint liquidity will be phased out, and a short-dated discount bond will be introduced on an ad hoc basis to preserve stability in the end-quarter swap market. To reduce inflation, the government also froze fuel prices for three months from 15 November, capping them at 480 forints. The forint’s exchange rate against the euro has stabilized at around 365 following the weekly interest rate hikes. During the month, the yield curve moved higher due to the regional sell-off. Three-year yields ended the month up by 147 basis points, 5-year yields by 92 basis points and the 10-year yields by 45 basis points. Government bond buying continues, but the volume of weekly purchases fell below HUF 30 billion by the end of the month, so the target amount of weekly purchases is likely to be reduced in the end-quarter review. The government continues to hold a large stock of cash. Developed markets have not helped either, with news of a faster unwinding of US asset purchases, the market is already pricing in 2 US rate hikes next year.

The table below shows the Fund Manager’s view on the different asset classes and the weightings within each asset class.

 

Within Asset Classes Underweight Slight Underweight Neutral Slight Overweight Overweight
Bonds
Within Bonds
United States
Europe
Emerging Markets
HGB

 

 

Equity Markets

In November, it seemed that the Covid pandemic became a non-factor because of the vaccination and would be just a bad memory, but unfortunately, a potentially more infectious strain had developed in South Africa by the end of the month. Within a short period of time, the new strain has appeared around the world and the question now is how governments will respond to this new challenge. Very little is known about the new variant, communication will mostly consist of encouraging the public to take the 3rd jab. If we are lucky, the current vaccines will provide enough protection against the new variant, if not then the corona virus will continue to cause problems for a long time. We do not think that there will be the repeat of the level of closures that we saw in the first or second wave.

In the US, speculation continues as to when the Fed will raise interest rates. Current pricing suggests the first hike will be next June, followed by two more. At the November Fed meeting, it was also announced that they would start the tapering by $15 billion per month.

In Europe, the ECB President again rejected the possibility of any monetary tightening, in contrast to the Fed, stating that rising energy prices have already pushed household spending incomes into negative territory.

In Hungary, the central bank raised the benchmark interest rate by a further 30 basis points in November to 2,10%. In addition, the Hungarian National Bank reintroduced the 2-tier interest rate regime in order to stabilize the forint exchange rate. The result is that the official interest rate is 2.10% while the weekly deposit rate is 3.10%. The central bank’s clear aim is to keep inflation in check without torpedoing economic growth. At the same time, they also want to stabilize the forint exchange rate, preferably around the EUR/USD 360 level.

The table below shows the Fund Manager’s view on the different asset classes and the weightings within each asset class. As the markets have rallied a lot in the recent period we are rather neutral for the near future. Within developed countries we are neutral on the U.S. and Japan, and slightly underweight in Europe. Within emerging markets we prefer Russia, India and Taiwan to other emerging markets.

 

Within Asset Classes Underweight Slight Underweight Neutral Slight Overweight Overweight
Equity
Within Equity
Developed Markets
Emerging Markets
United States
Europe
Central and Eastern Europe
Brasil
Russia
India
China
Turkey
Japan
South-Korea
Taiwan
South-Afrika
Mexico
Indonesia

 

 

Our Funds and Outlook

 

The first half of November was all about how much and when the US Federal Reserve would raise the Fed funds rate, but by the end of the month a new variant of the Covid virus was in the spotlight. Markets were spooked by the new South African variant and a sell-off wave hit the equity markets. We do not think that the new variant will be a factor in the valuation of the market. The type of shut downs that we have seen over the past year will not be imposed again by the political leaders, we believe that equities are solely dependent on the US Federal Reserve’s communication. Bonds are in a tougher position because inflationary pressures are mounting and the inflationary environment is not conducive to bond investors. Our view remains unchanged, the US Fed will not raise interest rates because of the extremely high level of government debt, but that means inflation will be with us for some time and a stagflationary environment could even develop.

The following table shows the outlook for the Aegon Asset Management’s focused funds. The positions refer to the months of October-November, depending on the current data and market developments – these investments may change significantly.

 

Portfolio Summary of last month What could make our forecast wrong
Aegon Moneymaxx Total Return Investment Fund The fund posted a negative return in November. On the bond side, in local currency bonds, we took profit on the Mexican exposure, we sold the Polish exposure at a loss, but unfortunately the other exposures showed losses at the end of the month. In hard currency bonds, we reduced the Turkish duration. On the equity side, we took profits in the DAX and bank index positions and bought shares in a company related to uranium production. At the end of the month we bought some oil after a sharp sell-off and hedged the portfolio with the sale of SP500 futures. On the currency side, we opened a 10% forint long position against the euro. The biggest risk to the fund could be the fall of the equity markets and the expansion of emerging market bond spreads.
Aegon BondMaxx Absolut Return Bond Investment Fund The fund kept a somewhat lower risk exposure. Bought lower beta corporate papers, mainly Hungarian issuers. The fund took profit on its Mexican local bond trade and sold its remaining Turkish exposure as well. In addition to the increase in credit spreads, the rise in rates in the mid-curve would be unfavorable for the fund.
Aegon Alfa Absolut Return Equity Investment Fund The fund posted a negative return in November. We suffered losses on both the equity and bond portfolios during the month due to the general market fall and a rising interest rate environment. In November, we tried to hedge our equity exposure with DAX and SP500 futures, but this was not enough to compensate for the fall in the equity markets. We intend to reduce the level of hedging by the end of the year to have a higher risk level in the fund. During the month, we opened a15-20% forint position, taking advantage of favorable swap points around the EURHUF 370 level. Due to profit realization, we sold our position in a Covid vaccines manufacturer during last month. The stock was very volatile, we took advantage a sell-off to buy and sold the position on a rally. We kept our positions in European bank shares unchanged. If there is a major correction in the markets during the month, we will increase our risk exposure. We reduced the equity exposure in the fund to below 10% by the end of the month. The fund’s performance would be negatively impacted by a sudden fall in the stock market for which we would not have enough time to prepare.
Aegon Maraton Acitve Mixed Investment Fund The fund posted a negative return in November as global equities corrected and yields rose. In addition, we still suffered losses with the hedging strategy, but we steadily increased our currency hedging against the euro and the dollar during the month, reducing the fund’s open currency exposure to 4% by the end of the month. In terms of individual positions, exposure to OTP and Vitesco and commodities reduced the fund’s returns in November, while the semiconductor sector and the exposure to Indian and Taiwanese markets helped. By the end of the month, the equity weight in the fund was reduced to 20%. The excessive strengthening of the forint against regional currencies and the sudden fall of the regional stock market would have an adverse effect on the fund.
Aegon Panoráma Total Return Equity Investment Fund The fund posted a negative return in November. During the month we reduced our hard currency bond short positions. In the commodity exposure, we also steadily reduced our gold and oil positions as prices came down. In platinum, we took advantage of the mid-month rise and realized a profit, while in coffee, we realized partial profits. We also reduced the exposure on the equity side, with selling some of our bank index positions, commodities related equities and the retail sector positions. The OTP position has also been stopped out. On the FX side, we reduced the forint short positions. A sudden fall in the stock market would negatively affect the performance of the fund that we would not have enough time to prepare for.
Aegon Central-European Equity Fund The fund posted a negative return in November, but outperformed the benchmark index. The fund remained overweight in Austrian and Hungarian markets, while the Polish overweight was closed and became underweight by the end of the month. The Romanian and Czech markets remain underweight. The retail sector remains overweight while the utilities and banking sectors are underweight. Within the banking sector, we have sold a large part of our Polish exposure and instead bought a small size in the Czech banks. Overall, the fund is overweight against the benchmark index at around 103% due to long positions. The fund’s performance would be negatively affected by a large, sudden fall in the Central European stock market prices, especially in the overweight sectors and regional markets, which would mean a larger drop compared to the benchmark.
Aegon MegaTrend Equity Fund of Funds The fund did not increase its return in November and performed in line with the benchmark index. Semi-conductor exposure, the technology sector, the water management sector and the electric cars and lithium related companies helped the fund’s returns last month, while the solar energy sector, fintech and the emerging market internet sector took away from the fund’s returns. A widespread stock market sell-off would negatively affect this fund.
Aegon Russia Equity Investment Fund The fund posted a negative return in November and underperformed the benchmark index. The negative return was mainly due to the prevailing political environment, while the underperformance was mainly caused by the overweight of the oil sector. We keep the overweight unchanged because we believe the sell-off in November was only temporary and we remain positive on the energy sector. Against the energy sector overweight, we keep the gold, internet and technology companies at underweight. We still hold the airlines as we believe they are fundamentally underpriced. The fund was at neutral weight against the benchmark at the end of the month. The performance of the fund would be negatively affected by a further escalation of US and European sanctions and a sudden devaluation of the ruble.
Aegon IstanBull Equity Investment Fund The fund posted a negative return in October, but outperformed its benchmark index. The Turkish market continues to be driven by the statements and actions of the Turkish President. As a result, the Turkish lira is also highly volatile, which is weighing on Turkish equities. We do not know how long the Turkish President’s rampage will continue, but our view is that further weakening of the lira will limit the measures he can take. The fund continues to hold positions in export-oriented and cash-rich companies as we believe these are the companies that will weather this turbulent period the best. The composition of the banking sector in the fund has changed, with a neutral weight the private banks and underweight the public banks. However, the oil refining and petrochemicals sectors remain overweight, which was a good decision as these two sectors rallied significantly in November. The fund was underweight the benchmark index by 3% at the end of the month. The fund would be adversely affected by the sudden depreciation of the Turkish lira and unexpected, economically negative measures by the Turkish president.

 

 

Privátbankár.hu Klasszis awards:

 

in 2021

1st place Fund Manager of the Year: Aegon Magyarország Befektetési Alapkezelő Zrt.
1st place Emerging Portfolio Manager of the Year: Zoltán Szűcs
1st place Best Free Bond Fund of the Year: Aegon Emerging Europe Bond Fund – Zoltán Szűcs és Vitaliy Poplavets
1st place Best Long Bond Fund Of The Year: Aegon Polish Bond Fund – Gábor Németh
1st place Best Absolute Yield Non-Derivative Fund of the Year: Aegon MoneyMaxx – Ádám Bakos
2nd place Best Emerging Market Equity Fund Of The Year: Aegon Emerging Market ESG Equity Fund – György Pálfi, Péter Richter

 

in 2020

1st place Fund Manager of the Year: Aegon Magyarország Befektetési Alapkezelő Zrt.
1st place Portfolio Manager of the Year: András Loncsák
1st place Best Free Bond Fund of the Year: Aegon Emerging Europe Bond Fund – Zoltán Szűcs és Vitaliy Poplavets
1st place Best Long Bond Fund Of The Year: Aegon Polish Bond Fund – Gábor Németh
1st place Best Absolute Yield Non-Derivative Fund of the Year: Aegon Alfa – András Loncsák
2nd place Best Emerging Market Equity Fund Of The Year: Aegon Russia – György Pálfi

 

in 2019

I. helyezett Best Money Market Fund of the Year: Aegon Money Market Fund
II. helyezett Best Free Bond Fund of the Year: Aegon BondMaxx R series
II. helyezett Best Emerging Market Equity Fund Of The Year: Aegon Russia
II. helyezett Best Global Equity Fund of the Year: Aegon Emerging Market ESG B Series (previously: Aegon Asia)
III. helyezett Best Long Bond Fund Of The Year: Aegon Polish Bond Fund P Series

 

in 2018

1st place Emerging Portfolio Manager of the Year: György Pálfi
1st place Best Absolute Yield Non-Derivative Fund of the Year: Aegon Alfa – Ádám Bakos, Gábor Németh, Zoltán Szűcs
1st place Best Absolute Return Fund of the last 10 years: Aegon Alfa – Ádám Bakos, Gábor Németh, Zoltán Szűcs
1st place Best Domestic Money Market Fund of the Year: Aegon Money Market Fund
2nd place Best Free Bond Fund: Aegon Bondmaxx Total Return Bond Fund
3rd place Best Absolute Return Non-Derivative Fund: Aegon Moneymaxx Express
3rd place Best Free Bond Fund: Aegon Emerging Europe Bond Fund

 

Detailed information on the investment policy, distribution costs and potential investment risks of the funds can be found in the official prospectus and fund rules of the fund on our website. The information provided on this website is only for informational purposes and nothing on this website shall be considered a solicitation to buy, an offer to sell, or recommendation for securities, other financial products or services. Past performance is no guarantee of future performance. Aegon Magyarország Befektetési Alapkezelő Zrt. does not take responsibility for the investment decisions made on the basis of this announcement and its consequences.

 

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