House View – August 2021

House View

House View

August 2021

5 minutes reading time

 

Credit Markets

In August growth scares came to the fore a bit as investors were assessing the global activity conditions to turn slightly worse from here. Growth sensitive assets bared the brunt of the growth scare, commodities have fallen approximately by 6% in USD terms by the middle of the month. Within the commodity complex oil and copper, the two main commodities that correlate best with global growth have fallen the most by 14% and 12% respectively in US dollar terms within this time period. The sentiment turned after Jay Powell, Fed governor gave his speech in Jackson Hole which took the market as rather dovish. The event had lifted markets and financial assets closed the month more or less unchanged. The emerging market bond space was the beneficial of the dovish speech and after Jackson Hole the asset class was able to gather momentum and close the month in positive. The main outperformer regions in the sovereign credit space in EM were Africa where the most single B issuers are found with high spreads and the Middle East with 16 and 17 basis points of spread tightening. In EM Europe Ukraine and Turkey managed to rally by 35 basis points and 22 basis points respectively.

In August, year-on-year inflation surged to 4,9% above market expectations, from the 4,6% from the previous month. With this print, price increase turned upwards again after a slight decrease in July. At its August meeting, the central bank raised the base rate for the third time by 30 basis points. The tightening of monetary policy will be reviewed in the September Inflation Report, but the upward inflation path still justifies the continuation of the cycle. In addition to the rate hike, it was announced that asset purchases would continue, but the amount of weekly purchases would be slightly reduced. This marked the beginning of a slow but gradual phasing out of the quantitative easing. The size of the Growth Bond Program has also been increased to HUF 1550 billion. At the end of the month, the domestic yield curve has also moved higher, driven by the sell-off in developed markets. Yields on the 3-year maturity were 26 basis points higher than at the beginning of the month, while the 5-year maturity closed the month 35 basis points higher and the 10-year maturity only 13 basis points higher. The government has a huge stockpile of cash. Asset purchases will be reviewed at the end of the quarters.

 

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 August, markets continued their march to new highs and another record was broken. So far, the number of new highs set in August was 11, which occurred in 1929, followed by 10 in 1987. Both are notable, as these two years saw the two biggest market falls of the 20th century. We don’t know if 2021 will be remembered for this, but it is safe to say that the current market overvaluation far exceeds that of 1929 and 1987. The economic structure now is completely different from what it was then. The growth of the economies was not so dependent on the performance of stock markets, which puts the current market conditions in a different perspective. Thanks to the continuous intervention of central banks, stock markets no longer reflect the real valuation of the real economies, but the liquidity provided by central banks. If this flow of money were suddenly stopped, there would be another crash regardless of the performance of the real economies. The US Federal Reserve wants to avoid this at all costs, and will do everything in its power to do so. The Jackson Hole meeting in August was held in this spirit, when Fed President Jay Powell implicitly suggested that the money supply would not be turned off. Although he hinted that not everything is going the way the Fed would like, he said that the time for financial tightening had not yet come. That could mean that inflation will continue to rise, which could cause serious problems for the central bank in the future. US government debt is rising steadily, which could cause even more problems if interest rates are raised later. Not only the GDP could slowdown because of the high government debt, but in addition, a re-pricing of the market due to higher interest rates could trigger a very sharp fall in stock markets. From here in Hungary, it seems that the US Fed has gone all-in, and running out of viable options. The Covid virus is still with us and there is no way to predict what the fourth wave will look like. The optimistic scenario is that it will only cause problems for the unvaccinated, the pessimistic one is that a new variant will evolve, and that could be resistant to the current vaccines. There is a sense that politicians don’t want the kind of lockdown that we had last year, but if a new variant develops that is resistant to the current vaccines then they will have little but no choice. In any case, the stock markets are now pricing in the most optimistic scenario, giving no room for the slightest error.
The table below shows the Asset Management’s views on the different asset classes and the weightings within each asset class. As the markets have rallied a lot in the recent past, we are rather neutral for the near future. Within the developed markets we are neutral on all countries. Within emerging markets, we prefer the Central and Eastern European region as well as Russia, India, Taiwan and Mexico to other emerging 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
Russia
India
China
Turkey
Japan
South-Korea
Taiwan
South-Afrika
Mexico
Indonesia

 

 

Our Funds and Outlook

 

Throughout August, investors have been looking forward to the annual Jackson Hole meeting as, based on previous years’ experience, the US Federal Reserve has unveiled policy directives that have set the investment environment for the rest of the year. It was no different this time, we learned that the Fed has no plans to turn off the money spigot, at least until the end of the year, the 120 billion in monthly liquidity will remain available for the markets. We have also learned that Jay Powell’s dictionary defines inflation differently, and this suggests that the extremely loose monetary conditions will be maintained not only until the end of this year, but for much longer. This will raise interesting scenarios in the current economic situation. We do not know what the central bank will do if inflation remains high without unemployment falling. This is the worst case scenario of all, as everyone loses in a stagflationary environment. Our view is that sooner or later the irresponsible fiscal policies of recent years will catch up with the central bank, and the monetary authorities will face very serious challenges.
The following table shows the outlook for the Aegon Asset Management’s focused funds. The positions refer to the months of July-August, 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 slight positive return in August. During the month, we reduced the forint interest rate risk in the middle of the curve, while increased the credit risk in the foreign currency bonds by buying Ghanaian bonds. As the forint strengthened, we gradually halved our long position during the month. On the equity side, we continued to increase our exposure to Russia, reduced our exposure to Turkey, took profits in Hungarian equities and bought a small position in Chinese equities during the month. The commodity positions were stopped out when they started to fall in the middle of the month. 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 We increased our duration position and went down the credit rating ladder. We bought some long end Ghana exposure as spread levels are high. 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 August. The risk level was slightly increased at the beginning of the month on the back of good reporting from leading Hungarian equities, bringing the equity weighting in the fund to 15%. In the middle of the month we tried to take advantage of the weakness of the SP500 index by taking short positions, but these positions were closed at the end of the month after the Jackson Hole meeting, when the index reached new all-time highs. At the end of the month, seeing how pessimistic the investment world had become about Chinese equities, we started to dip our hands in Chinese technology stocks. Our strategy for the future remains cautious, as we believe that some markets have become very over-positioned, which could cause a market correction. The number one risk, in our view, is that central banks start to cut QE, but we do not rule out the possibility that the rest of the year will still be good for the equity markets. We have reduced the fund’s currency hedging as the forint has strengthened during 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 achieved a positive return in August. The main contributor to the positive return was the equity exposure, mainly the Hungarian equities. The commodity sector exposure took away from the fund’s return. During the month we bought Russian equities, while we reduced the emerging market, Taiwanese and emerging market small caps exposure. We also reduced our exposure to Chinese equities in the first half of the month after the weak performance of the because of the bad news flow. On the bond side, we bought Mexican and Ghanaian bonds. In August, the forint strengthened during the month, so we reduced the hedging positions against the euro. By the end of the month, the fund had a 40% equity weighting. 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 slight negative return in August. During the month, we slightly reduced the commodity exposure a after a few of the fund’s positions were stopped out. Once prices stabilized we bought back some of these positions. As prices came down in August, the equity weight also fell slightly. On the currency side, as the forint strengthened, we started to increase our short positions against the Hungarian currency. 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 August, but underperformed the benchmark index. The fund remains overweight in the Austrian, Hungarian and Polish markets. During the month, we changed the allocation in the energy sector by selling Hungarian, Austrian and buying Polish equities. In the retail and gaming sectors we realized profits and thus reduced their weights during the month, while increasing the bank sector’s weight. The retail sector remains overweight in the fund, while the telecom and utilities sectors underweight. Overall, the fund is overweight against the benchmark index at around 108% 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 delivered a positive return in August, but slightly underperformed the benchmark index. The fund’s returns were helped by US technology, fintech, semiconductor and water management exposure during the month. The emerging market internet, cannabis and commodities sectors took away from last month’s return. At the start of the month, we increased the weight of the healthcare sector, while we reduced weight of the insurance and gaming sectors. The fund’s equity allocation is slightly overweight against the benchmark index. A widespread stock market sell-off would negatively affect this fund.
Aegon Russia Equity Investment Fund The fund posted a slight negative return in August and also slightly underperformed the benchmark index. We remain overweight the oil companies as we are most positive on this sector and the revisions are very positive, while we are underweight internet and technology companies. The fund’s returns have been helped by the gas exploration companies over the past month. Although airlines underperformed last month, we still hold them in the hope that domestic and European tourism will rebound in the second half of the summer. We underweight the internet and technology companies. The fund was equally weighted 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 delivered a positive return in August and outperformed its benchmark index. At the August interest rate decision meeting, there was no change in the base rate, which had a positive impact on the Turkish lira and thus the Turkish market. This was also positive for the banking sector, but unfortunately, this sector was underweight in the fund. The fund’s performance was positively influenced by the consumer durables and consumer staples sector, the chemical sector and exposure to a glass manufacturing company. The fund was underweight against the benchmark index by 7.5% 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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