House View – May 2022

House View

House View

March 2022

5 minutes reading time

 

Credit Markets

In April, year-on-year inflation rose by 9.5%, which was well above market expectations. The rise in inflation is mainly due to higher food prices, but annual increases in services and durable goods have been consistently above 6% and 11% respectively. In May, deputy-governor of the Hungarian central bank suggested that the central bank would slow down the pace of the base rate hikes. Thus, at the May rate decision meeting, the base rate was raised by 50 basis points, but the one-week deposit rate continued to be raised by 30 basis points, so the pace of tightening has not slowed down, only the gap between the two rates will be closed later. Thus, the base rate currently stands at 5.9% and the one-week deposit rate at 6.75%. At the end of May, the government announced fiscal consolidation, with a special tax on “extra profits” in certain sectors. On the news, the EURHUF exchange rate rose to 397 and the forint has since failed to strengthen meaningfully. By the middle of the month, yields moved up by 30-40 bps before correcting back roughly to initial levels. The domestic real interest rate deteriorated slightly, but is still above the regional average. The path of inflation in 2023 remains uncertain. The budget deteriorated further in April, with the balance jumping to 85% of the full-year deficit plan. Nevertheless, bond issuance is on track, with institutional issuance at 54% at end-May. International sentiment remains poor and recession fears have come to the fore, making us slightly more positive on the asset class. And the announcement of fiscal policy consolidation is also positive from an investor perspective.

 

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

 

 

Equity Markets

The Russian-Ukrainian conflict has been completely pushed into the background, and investors are almost exclusively interested in the impact of the war on inflation around the world. Food prices have already risen significantly as both Ukrainian and Russian grain exports have fallen sharply. Energy prices are also at a decade high, but here the price rise is mostly due to refined products. The US Federal Reserve is in a serious dilemma. In May, the biggest retail chains published their quarterly reports, and almost all reported weaker-than-expected results. This already suggests that the US economy is in a possible recession, even if the macroeconomic numbers do not yet show it. The Fed is still communicating that we can expect 50 basis point hikes and a large reduction in the bond portfolio in the coming period. The ECB is in similar situation to the Fed. The impact of the war in Europe is being felt in full force, and the inflationary impact is even higher. Natural gas prices have seen an unprecedented rise, but gasoline prices have also hit a record high. In Germany, annual inflation rose to 8.70%, a 60-year high. The Hungarian central bank continued to raise interest rates in May in response to the high inflation figures. In May, the MNB raised the base rate by 50 basis points to 5.90% and the one-week deposit rate to 6.75%. The EURHUF exchange rate was highly volatile in May due to the Russian-Ukrainian conflict. During the month, the forint weakened from 375 to 397 against the euro. At the moment, higher interest rates are unable to strengthen the Hungarian currency.

The table below shows the Fund Manager’s view on the different asset classes and the weightings within each asset class. Markets were very volatile in May, but we believe that markets have stopped falling, albeit temporarily. On this basis, we are now positive on some markets. Within developed markets, we are underweight the US and positive on Europe. Within emerging markets, we remain positive on commodity exporting countries.

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
India
China
Turkey
Japan
South-Korea
Taiwan
South-Afrika
Mexico
Indonesia

 

 

Our Funds and Outlook

 

The world’s economies are now almost entirely driven by inflation, and investors are trying to figure out what central banks will or can do about it. It is now clear that central banks had no clear knowledge last year that inflation would hit multi-decade highs and therefore had no plan to do anything about it. Now we see them scrambling, and the stock and bond markets are moving accordingly. The question is whether the central banks will and can do anything about inflation in the period ahead. The easiest thing to do would be to raise interest rates until the economy slows down and the rate of inflation comes down. But as has been said many times before, the Fed can’t do that because of the US national debt. We wait with interest to see what the Fed’s next move will be.

The following table shows the outlook for the Aegon Hungary Investment Fund Management Company Limited by Shares (Investment Fund Management) focused funds. The positions refer to the month of May, 2022, and 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 achieved a positive return in May. As we believe Hungarian interest rates are at very favorable levels, we have further increased this exposure by buying 5-year Hungarian government bonds. Although the Russian bonds did not change significantly, coupon was paid, which is a very positive development. On the equities side, we sold our positions in Erste, Magyar Telekom and OTP and took profits on the Brazilian exposure and in the energy sector. We replaced these positions with emerging market index purchases, but overall the equity weight in the fund has declined. We are cautious on equities in the coming period, but we remind ourselves that emerging market valuations are already at very attractive levels, and the turnaround in China could help to lift the stock prices. At the end of the month, we decreased our gold position to 2.50%. On the FX side, we bought forints against the euro and the Polish zloty, so this is now 10% of the fund’s exposure. 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 achieved a positive return in May and outperformed its benchmark index as well. The fund still keeps its Ukrainian and the remaining part of the Russian corporate exposure and waits for improvement in the Ukrainian-Russia war. 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 achieved a positive return in May. The positive return was achieved by taking short positions in the SP, Eurostoxx and Dax futures at the beginning of the month, as well as good performance of some individual stocks. At the beginning of the month, the fund had a 10% long equity position, but this was offset by 25% index short positions, resulting in a net equity weight of -10%. At the bottom of the selloff, we closed out the short positions and bought a 10% Nasdaq long position and some large capitalization technology stocks. On the bond side, we continued to buy the Hungarian 10-year bonds. Yields have stabilized around 7% and we believe these are good entry levels. The gold position was closed at the end of the month as it did not perform as it should have in a politically unstable inflationary environment. We used the weak forint to keep buying the forint against the euro, so by the end of the month we had a 20% EURHUF short position in the fund. Going forward, we intend to follow the strategy of buying in sell-offs and increasing the exposure of the fund, but in a sudden rise we are neutral or even taking net short positions in the fund, as we do not expect an outstanding performance from equities in the current stagflationary period. 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 achieved a positive return in May. During the month, we further increased the fund’s interest rate risk in the bond markets and, as equity markets became extremely oversold in the second half of the month, we tactically significantly increased the equity weight of the fund. Within equities, we bought mainly developed market equities, but also increased the equity exposure through various futures contracts, bringing the exposure to 40%. At the end of the month we also increased our exposure to commodities from 4.50% to 5.50%. We are positive on the European integrated oil sector as the lack of refinery capacity could make this sector very profitable in the near term. Within the region, we sold OTP and Erste due to the introduction of new Hungarian taxes. The Ukrainian, Russian and Hungarian bond positions all contributed positively to the fund’s performance. At the end of May, we hedged all the fund’s currency exposures as we believe that the forint has weakened unrealistically low against the euro and the dollar. Strategically, our view is that economies are approaching a recessionary phase, so we are looking to increase bond exposure going forward, and within bonds we are mainly positive on the Hungarian market. 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 achieved a positive return in May. During the month we reduced the negative duration from 3 to 1 year. On the commodity side, we sold soybeans when they reached our target price. We bought oil several times, but we bought it twice and it and sold it with little profit until finally on the third buy it broke out and went to $120. We also sold this position because the difference between the first and second month indicated that the price was not sustainable. We also sold gold because it went up very little compared to the fact that inflation is at a multi-decade high and a nuclear power is at war. At the beginning of the month we reduced the equity weight to 10% with sales of Erste and OTP, but we started to re-increase the equity exposure at the bottom of the selling wave by buying different equity sectors. We are cautious on the equity asset class going forward, our view is that higher interest rates will be negative for these investments, while we are still positive on commodities, but there we are already seeing some sector weaknesses. On the FX side, we have reduced our exposure to the forint to 10%, but we don’t want to go lower than that. 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 achieved a positive return in May, but slightly underperformed its benchmark index. At the sector level, the oil and utilities sectors were the main contributors to the fund’s return. We have reduced the Hungarian weight in May due to negative economic news, as we believe that the new taxes could cause the Hungarian market to underperform the regional markets in a similar way as it did in 2012-2014. In contrast, we have further increased the weight of the Austrian market. In the region, the Czech, Polish and Austrian markets performed well, while the Hungarian market lagged significantly behind. At country level, the Czech weight was reduced, while the Austrian and Romanian weights were increased and the Polish underweight was closed. At the sector level, we increased the consumption sector and in some companies took profits in the utilities sector. Overall, the fund is overweight against the benchmark index at around 112% 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 posted a negative return in May, but outperformed its benchmark index. The fund’s return was positively contributed by sectors linked to commodities, energy transition and renewable energy. Consumption-related sectors decreased the fund’s performance last month. The weight of this sector was reduced by the end of the month. In contrast, we increased the weight of the agriculture and nuclear energy sectors. Going forward, we intend to follow a strategy of buying in sell-offs and increasing the exposure of the fund, but in a sharp rise we will keep the exposure neutral as we do not expect stocks to outperform in the current stagflationary period. For long-term strategic reasons, we will continue to focus on scarce resources and deglobalisation-related sectors in the fund. During the month we increased the equity exposure of the fund to 100%. A widespread stock market sell-off would negatively affect this fund.
Aegon Russia Equity Investment Fund In May, the conversion and cancellation of depositary receipts (GDRs) listed on foreign stock exchanges in Russia started. It was a positive development that several companies were exempted from the cancellation obligation, so that their shares can continue to be available on the London and overseas markets. However, state-owned or strategically important companies were not exempted, so that in the case of Gazprom, Sberbank and Lukoil, among others, the conversion of GDR instruments into local shares is mandatory for all investors. After the conversion, the local market shares are placed in a so-called “S-account”. The measure does not apply to shares listed directly on foreign stock exchanges. Access to the converted or local market shares will be possible after the opening of a market for foreign investors, for which significant progress has been made in recent weeks. The Moscow Stock Exchange has published a detailed presentation on the planned separate trading platform for foreign investors. It is envisaged that only foreign investors will be able to trade on this platform, with the proceeds from sales being placed in a so-called “S-cash account”. Due to the current capital constraints, there is still no information on whether withdrawals from the account will be possible in the future. Similarly, there is still no precise information on which stock investors from “friendly” countries will have access to, or whether there will be any Russian operators able to access the market for foreigners. The access of this market participant could be important for the future balancing of the two Russian exchanges operating in parallel, as while the local market is dominated by buyers (companies, sovereign wealth funds), the market expected to be created for foreigners is more likely to be a market for substantial liquidity rather than buying due to regulatory and legal constraints after market opening. The dual market is expected to open as early as the second half of June. The above suggests that, while there are some positive trends in the Russian market, such as the imminent resumption of trading for foreigners, there is still no prospect of capital restrictions being lifted. As both the Russian and EU sanctions remain in force and the net asset value of the fund’s series cannot be determined, the circumstances of the suspension imposed on 24.02.2022 remain in place. As a consequence, the market access of Aegon Hungary Investment Fund Management Ltd (the “Fund Manager”) to the Russian equity markets is still not guaranteed, and therefore the sale or redemption of units cannot be carried out for reasons related to the scope of the Fund Manager’s operations. Regrettably, the conditions for the resumption of continuous trading of the Aegon Russia Equity Investment Fund are still not met. 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 May and underperformed its benchmark index. Inflation remains extremely high in Turkey, and foreign investors are extremely underweight in this market. The Turkish lira weakened further in May, which was also inflationary. We started to actively take positions in the fund, and mainly bought high quality export oriented companies. In contrast, we are underweight firms that are mainly positioned for domestic consumption, because we believe that these firms cannot fully pass on the impact of inflation, as Turkish producer inflation is higher than consumer inflation. 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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