House View

House View

House View

April 2021

5 minutes reading time

 

Credit Markets


 

March turned out to be similar to this year’s earlier months. The 10 year US treasury bond yield continued to climb higher with a relative pause by the end of the month. However the US nominal yield was able to climb by 24 basis points despite Jerome Powell, Fed chair communicating a still-dovish monetary stance towards the markets. As real rates declined by 10 basis points during the month, most of the rise in nominal yields was driven by inflation expectations. Emerging market sovereign credit yield spreads remained steady during March and only lost in total return due to the US treasury yield rise. One big negative event occurred though which was the removal of the governor of the central bank of Turkey. The governor was considered to be a more investor friendly policymaker who inflicted a needed hiking cycle on the Turkish economy. There was no clear communication about the removal, but the reason that the market speculated on is that Turkey’s president, Erdogan was not satisfied with the intensive rate hikes. The Turkish lira immediately declined against the dollar and Turkish assets were hardly hit.

In March, YoY inflation rose to 3.7% from 3.1% in February, in line with market expectations, driven mainly by rising fuel prices. In the coming months, due to base effects, the pace of inflation may increase even further, approaching the 5% level. In March the central bank left the key rate unchanged at its interest rate decision meeting, and the one-week deposit rate did not change during Thursday’s tenders either. The central bank’s communication continues to be hawkish, they pay special attention to inflation developments, and they are ready to use the appropriate tools if the risks warrants it. The rules of the asset purchase program have been slightly changed, the 50% limit for each bond series has been abolished and the corporate bond purchase has been extended. As a result of the developed markets’ yield increases and the introduction of new restrictive measures, the domestic yield curve also moved up. Making the asset purchase program more flexible brought some adjustments to the yields, but yields were still 14 basis points higher at 10-year maturities and 4 basis points higher at 5-year maturities than at the beginning of the month. The market is already pricing in a 100 basis point rate hike over the next two years, with the focus continuing to be on the expected inflationary effects of the reopening.

 

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 March 2021.

 

Equity Markets


 

In March, the trend of the previous few months was reversed, with the value-based sector outperforming the growth sector. Until mid-March the value-based sector performed better, but after FED Chairman Powell said at a central bank meeting that they would not raise interest rates until 2023 under any circumstances, the growth sector began to outperform again. The Fed President ensured the markets that they will keep on providing liquidity, but this has also raised some issues. The rise in inflation is already shown by the latest CPI and PPI data, the question is what will the central bank do if the rate of inflation is higher than the forecast. Current U.S. monetary and fiscal policy is boosting the economy to such an extent that a significantly higher inflation environment is almost inevitable. If the central bank wants to keep a lid on inflation, it would have to raise interest rates, but its hand is tied because of the constantly rising government debt. The central bank is in a difficult situation, sooner or later they have to decide what is more important to them.

Rising inflation, on the other hand, will be good for the banking and commodity sectors, but the growth sector could face severe headwinds. Rising inflation will bring P/E ratios lower which will lead to lower stock prices. This does not necessarily mean that stock markets will collapse, but investors could shift from the growth sector to the value or commodity sectors.

The table below shows the Fund Manager’s views on the different asset classes and the weightings within the asset class. As the markets have risen tremendously in recent months, we are neutral for the near future. In addition to the United States, we tend to view positively Europe and Japan, as these economies perform best in an inflationary environment.

 

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 March 2021.

 

Our Funds and Outlook

 

Although the major stock indices closed at new all-time highs by the end of the month, the markets were volatile in March. U.S. long-term yields hit a 2-year high, to which stock markets reacted with fierce price movements. At first, investors reallocated from the growth sector to the value-based sector because of the rate rise, but when interest rates fell slightly, money flowed back into the growth sector again. Investors cannot decide what environment to expect in the near future. If the inflation thesis becomes a reality, interest rates will go even higher, which is negative for the equity markets in the long run. This would relatively favor the value-based sector, but if interest rates decrease in the coming months, the growth sector would be in favor again. If we look at the fundamentals, in the current environment, interest rates should go higher, because now not only the monetary but also the fiscal policy favors higher interest rates. Higher interest rates, on the other hand, would be unliked by the Fed, because while they would not mind if long-term interest rates went up, a rise in short-term interest rates would be against their interests. We are looking forward to an interesting period, and wondering what the Fed’s reaction will be if the macroeconomic indicators will also forecast a higher than expected inflation.

The following table shows the outlook for the Aegon Fund Manager’s focused funds. The positions refer to the months of February-March – 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 negative return in March. The negative result was mainly due to the Turkish lira, EMFX and commodity positions. We swapped the entire gold exposure to silver and platinum last month, but the silver position was stopped out during the month. The position of the Turkish lira has also been stopped out after the sharp currency movements in March, and we believe that the original investment thesis in the Turkish economy has changed. We further reduced our bond exposure by selling Serbian, Azerbaijani, Ukrainian and Turkish papers. In contrast, we bought Romanian and Polish bonds, of which we already sold Romanian during the month due to profit realization. On the currency side, the ruble and PLNHUF exposures were closed, the Brazilian real and the forint long positions were kept unchanged.

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

At the beginning of the month we were neutral on Turkey before the removal of the CB governor, but we decreased our exposure as we see high uncertainty regarding the Turkish economy. We also sold some Ukrainian and Serbian assets.

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 March. We are of the opinion that although the epidemic situation in the CEE region is now worse than the rest of Europe, it is better in terms of vaccination than in other countries, which is why we have a very positive view of this region. If we look at Hungary, the country’s vaccination rate is one of the best in the world. We increased the equity weight from 15% in February to 30% in March, of which 2/3 is from the CEE region and 1/3 is focused on the reopening theme in Europe. During the month, the fund realized profits in Volkswagen and S Immo. Although commodity exposure was closed in March, we remain optimistic about this sector and waiting for a better entry point to reestablish some positions.

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 March. The main contributors to the positive return were reflation related exposures, such as the Greek banking, real estate and oil sectors. Unfortunately, Turkish exposure contributed negatively to the fund’s March performance. The fund had a 40% equity weight by the end of the month, but we plan to increase it next month through the commodities sector or in sectors in which the fund previously had a position but sold due to high valuation, but this high valuation came down in the recent past. The bond exposure also contributed negatively to the fund’s return in March, mainly due to rising U.S. interest rates.

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 March. Taking advantage of the falling prices in some commodity products, such as copper, we further increased our commodity weight during the month. On the stock and bond side, we have not changed, we still hold the -2.2 duration in the latter because we still believe that we are facing an inflationary environment. On the foreign exchange side, the position of the Turkish lira has been stopped out, and after the violent movements in March, we believe that the original investment thesis in the Turkish economy has changed.

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 March and outperformed its benchmark. The fund remains overweight in the Austrian and Hungarian markets, while the Czech, Polish and Romanian exposures are underweight. At the sector level, the oil and real estate sectors are overweight, while the e-commerce, utilities and banking sectors are underweight, although we have reduced the underweight of the latter by buying Allegro stocks. Overall, the fund is overweight against the benchmark by 5% due to its 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 achieved a positive return in March, but underperformed its benchmark. In March, we increased the weight of the agricultural and electric car-related sectors, while we further reduced the weight of the healthcare sector. The best-performing sectors in the past month were the insurance and commodities sectors, while the emerging market technology sector had a negative impact on the fund’s performance. The fund’s equity allocation is slightly underweight relative to the benchmark.

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

Aegon Russia Equity Investment Fund

The fund achieved a positive return in March and also outperformed its benchmark. The threat of sanctions has increased over the past month after the U.S. president called the Russian president a killer, so we slightly reduced the risk exposure in the fund. We kept our exposure in the steel and oil sectors unchanged, and we believe that this asset class will perform very well in the future. Due to the increase in global bond yields, the fund remains underweight in the technology sector and overweight in the commodity sector. We closed Yandex and Alrosa underweight after their prices fell so much that they became somewhat fairly valued. In connection with the reopening thesis, we have increased the fund’s exposure in the airline sector as we believe this sector will benefit from increased economic activity. The fund was slightly underweight against the benchmark by 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 achieved a negative return in March and underperformed its benchmark. Unlike in February, confidence in the Turkish economy faltered in March due to the inconsistent behavior of the Turkish president. In November, when the president appointed a highly market-friendly leader to head the Turkish central bank, we thought a long-term turnaround could come in the Turkish economy, but the events of the past month unfortunately refuted it after the president unexpectedly fired the November-appointed central bank governor. This shook the Turkish economy to its core and had a negative impact on the Turkish currency rate. As a result, banks’ stock prices fell more than the market average, in which the fund unfortunately was overweight, but shares of local companies in which institutions do not invest, rose. This is what caused the underperformance of the benchmark. The fund continues to overweight pro-cyclical and the reopening industries such as the airlines. The banking sector is still overweight because we want to wait and see what will be the long-term effects of the March’s events on this fundamentally undervalued sector. The fund is approx. 5% overweight against the benchmark.

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 – 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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