House View – June 2021

House View

House View

June 2021

5 minutes reading time

 

Credit Markets


 

May proved to be a calmer month for bonds. As core markets seemed to have calmed and investors have priced in lower possibility of a persistent CPI overshoot, the market shifted towards higher yielding names in the EM space. Moreover, USD has weakened during the month and that lifted EM FX that had a stellar month overall. Commodities continued to show persistent strength across the asset class, with silver and gold being the top-performing assets as investors looked to precious metals as an inflation hedge, while oil is still the best performer on a YTD basis as investors look towards societies reopening. In emerging Europe a lot of good news came from Ukraine, regarding both land reform and overall legislation that targets lowering corruption.

Thanks to the acceleration of the vaccination process, the economy was almost fully re-opened by the end of May, and those who had been vaccinated almost fully recovered their lives to the pre-virus levels. Earlier this month, the Ministry of Finance raised its budget deficit target for this year to HUF 3,990 billion, and the Public Debt Management Centre has revised its 2021 financing plan accordingly. In May, year-on-year inflation could have risen further from 5.1% in April, and the central bank, seeing the risk, has also adopted a more restrictive tone in its communication. In mid-month, Barnabas Virág indicated that the central bank could start an interest rate hike cycle in June due to rising upside inflation risks. The Communication stressed that the gradual phasing out of crisis management tools could also start after the interest rate hike. The forint also started to strengthen on the news of the rate hike. The first quarter GDP figure was better than the 1.9% previously reported, as the economy grew by 2% compared to the last quarter of last year. The yield curve moved higher on the back of the monetary policy reversal, with yields ending the month almost 50 basis points higher at the three-year maturity and 20 basis points higher at the ten-year maturity. The government continues to hold a large amount of cash, with the focus on the June inflation report and the actions taken as a result of.

 

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

Table updated based on discussions in May 2021.

 

Equity Markets


 

In May, equity markets were more volatile than in previous months as investors are unsure whom to believe. US Federal Reserve Chairman Jerome Powell continues to communicate that there will be no interest rate hike until at least 2023, at which point inflation will be knocking on the door, from a commodity market perspective. The Fed continues to communicate that the current price increases are only temporary, due to pent-up demand from the Covid epidemic. If we look back over the last 20 years, we can see that the central bank’s economic forecasts have been pretty weak. They consistently predicted a higher inflation environment in a deflationary environment, and now when inflation has reached a 10-15 year high, they are communicating that this is only transitory, and the economy will return to its pre-Covid state. It’s no wonder, then, that investors are nervous and this is manifesting itself in a choppy market environment. The big question for the period ahead will be whether the inflationary period we are currently experiencing is temporary, as the central bank would like us to believe, or we are at the end of a 25-year deflationary period and the period ahead will be marked with a higher than average inflation. What makes it even more difficult for the Fed to act is that US government debt has increased tremendously in recent years, so potential interest rate hikes would hurt the economy, which in turn would hurt the equity markets.

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 on the near future. Among the developed countries, only the US is now overweight. However, for the first time in a long time, we prefer the Central and Eastern European region 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    

Table updated based on discussions in May 2021.

 

Our Funds and Outlook

 

In May, investors were trying to figure out whether the increasingly noticeable inflation would be transitory, as the Federal Reserve hopes, or whether price increases will be permanent in the future. Data from the US, Europe, and China suggests that we need to settle in for a longer-term inflation environment, which in turn poses a serious problem for the US central bank. In the recent past, the US government has taken advantage of the low interest rate environment and took on a significant amount of debt. The Fed has helped in this by keeping yields artificially low. But if inflation becomes a persistent feature in the economy, the Fed will have no choice but to raise interest rates. But if it does raise interest rates, it will in turn put an extraordinary burden on the US economy to pay the interest on the national debt. Last month, investors were trying to figure out whether inflation would be permanent, and if it is, whether the Fed would raise interest rates. This uncertainty was reflected in the equity movements. Last month was much more volatile than the previous ones. The central bank’s view is that inflation is temporary, but if it is not, it has the tools to contain it. The problem is that they have not yet said what other method they would use instead of raising interest rates. We believe that the stock market movements will be much more violent in the coming period until the inflation picture becomes clearer.

The following table shows the outlook for the Aegon Fund Manager’s focused funds. The positions refer to the months of April-May, 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. We further reduced the Hungarian interest rate duration at the beginning of the month and then bought Hungarian 5-year bonds at the end of the month as expectations of an interest rate rise revived. On the bond side, we bought Ukrainian and Ghanaian government bonds and bonds of a Russian steel company, while we sold our 5-year US, Ivorian and Intesa bank bonds and increased our bund short position. On the equity side, we further increased our exposure to Brazil, South Africa and the US energy sector. In the Hungarian market, we increased our exposure to OTP and reduced our position in Állami Nyomda. On the FX side, we closed half of our long euro-forint and Brazilian real positions and reopened long ruble positions.

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

During the month, we moved slightly into HY with buying Ghana, shifted EUR Ivory Coast to EUR Ukraine. We also traded the HGB yield tightening with profit after the selloff. We were stopped out from our Intesa Sanpaolo position.

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. By the end of the month we had reduced the equity weighting to 20% and we are planning to reduce it even further. In May, we took profits in the Greek bank and OTP positions. During the month we shorted the Nasdaq index which we bought back 5% lower. The Hungarian vaccination is one of the best in Europe and we believe this will be reflected in Hungarian economic activity. ? of the fund’s investments are in the CEE region and the other ? are concentrated in the European reopening. The strengthening of the forint has helped the fund in May, but we plan to reduce forint hedges by taking advantage of the strong forint.

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 Total Return Equity Investment Fund

The fund achieved a positive return in May. Although the return was good, the strengthening of the forint weakened the fund’s performance. Hungarian equity and oil exposure contributed most to the good performance in May. During the month we increased the Hungarian exposure and in contrast reduced the growth sector exposures in the fund, including solar, fintech and video games. By the end of the month, we had 50% equity weight in the fund.

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. After a long time, we established some tactical long positions in the Hungarian bond market. Duration risk has gone up to -3.4 years in the fund. We reduced our commodity positions during the month as we believe they have risen a lot in a short period of time, and commodities tend to move sideways or down after such a big rally. On the FX side, we have closed ? of the Brazilian real position, while we have reopened the Russian ruble long position. Of 20% of the fund, we started to open short positions against the forint below 350. On the equities side, we sold Greek banks, but bought European banks and OTP in return. At the end of the month we also reduced risk by selling Gazprom and the European bank index.

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 and the return was in line with the benchmark index. The fund remains overweight in Austrian and Hungarian market, and underweight in the Czech Republic and Romania. The Polish exposure is at the benchmark level. The fund participated in PETCO’s IPO. During the month the underweight in the banking sector was reduced, leaving the utilities sector as the largest underweight in the fund. Overall, the fund is overweight against the benchmark index at 110%, due to the long-term 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 and underperformed the benchmark index. The past month was not favorable for the growth sectors, but the weak performance was also magnified by the strengthening of the forint. The fund’s performance was negatively impacted by emerging market technology, renewable energy and fintech sectors. In contrast, the commodities and energy transformation sectors performed well. During the month, we increased our exposure to lithium-related companies. The fund’s equity allocation is slightly underweight relative to the benchmark index.

A widespread stock market sell-off would negatively affect this fund.

Aegon Russia Equity Investment Fund

The fund achieved a positive return in May, but underperformed its benchmark index. One of the main reasons for the underperformance is that two banks were up a lot in May but we underweighted them in the fund because of their fundamental valuations. We further reduced the risk in the fund because of the perceived rise in global yields. The oil and steel sectors remain overweight, reflecting the fact that economies are continuing to open up, which is good for these two sectors. The agricultural sector is also overweight, including fertilizer producers. The fund was equally weighted against the benchmark index 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 May, but outperformed its benchmark index. With Turkish inflation still very high and the currency risk is higher than usual, the bank index remains underweight in the fund. We try to establish positions in companies that have high dollar cash holdings and are mainly export oriented. Such a company is for example an exporter of household appliances or a commodity exporter. Although we took some profits last month, the agricultural sector is still overweight. The fund ended the month underweight against the benchmark index.

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

 

 

 

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