Are you able to give a short overview of your technique when it comes to what you are attempting to attain for traders, your funding course of and the make-up of the funding group?
The Aegon Excessive Yield Bond technique is managed utilizing an lively, high-conviction type to speculate throughout the worldwide excessive yield market. The technique goals to maximise complete return whereas additionally producing sturdy risk-adjusted returns.
Our method is concentrated on bottom-up safety choice. We depend on deep, elementary credit score evaluation to construct a high-conviction portfolio of finest concepts from the underside up. Supported by a structured top-down course of, we embrace a dynamic method to allocating to areas, scores and sectors.
The mandate is versatile and never constrained by an index. We make investments solely the place we see worth. We imagine that this versatile method helps us to maximise the chance set and avoids unintended constraints imposed by a benchmark as we intention to outperform our friends and international excessive yield indices.
Sustaining funding self-discipline is central to our type. Utilizing a risk-focused mindset, we take enough, however not extreme, funding threat as we pursue efficiency targets whereas staying inside threat tolerances. The group seeks a number of alpha sources in order that no particular person funding threat dominates the chance/reward profile.
The technique is group managed, bringing collectively people with various views and complementary skillsets. Thomas Hanson, Head of Europe Excessive Yield, and Mark Benbow, Funding Supervisor, co-manage this technique. They’re supported by a worldwide platform of over 160 funding professionals*, together with devoted excessive yield credit score analysis analysts in addition to distressed analysts. Collectively, the groups intention to use market alternatives and inefficiencies as they pursue aggressive returns.
How are you at the moment positioning your portfolio?
The outlook for top yield stays cautiously optimistic. There are pockets of worth to be discovered and we actually like greater rated threat. As well as, greater coupon charges present enticing alternatives to extend earnings.Â
With the attractiveness of upper high quality credit score now, transferring up in credit score high quality permits traders to be effectively paid in addition to scale back refinancing threat which is an ever-growing concern in our market. Because of this, we’re sustaining our give attention to higher-quality firms and decrease publicity to CCCs and under. This positioning provides some defensiveness to the portfolio whereas additionally enabling us so as to add yield in higher-quality firms.Â
Fundamentals are exhibiting indicators of degradation with leverage ratios rising and curiosity protection charges declining. Nevertheless, firms are coming off a really sturdy place to begin, and the market is arguably greater high quality than it has been beforehand. Importantly, firms are addressing upcoming maturities, supporting a muted defaults outlook. Nevertheless, rising dispersion throughout the excessive yield market, notably inside CCCs and under, warrants a pointy give attention to bottom-up choice. We count on to see extra dislocation within the lower-quality phase with weaker firms going through extra challenges. This gives ripe alternative for lively managers to ship alpha and differentiated efficiency. Â
Are you able to establish a few key funding alternatives in your fund you’re taking part in in the intervening time within the portfolio? This may very well be at a inventory, sector or thematic stage.
AÂ key funding theme within the fund is a give attention to earnings alternatives. For income-oriented traders, now could be the time to think about investing in fastened earnings. The upper charge atmosphere, coupled with an rising refinancing exercise, has led to enticing coupon charges not often seen lately.Â
Importantly, including earnings doesn’t require stretching for pointless threat in lower-quality credit score. We’re uncovering alternatives in BB or B-rated bonds that provide double-digit coupon charges, which might present a candy spot for traders from a threat/return perspective. Corporations on this area can nonetheless afford to pay greater coupon charges, however are additionally higher set as much as climate a possible financial slowdown.Â
Whereas earnings is at all times an vital driver of returns in excessive yield, the upper charge atmosphere has supplied alternatives to considerably enhance earnings. With spreads hovering round traditionally tight ranges, it’s unlikely that we’ll see significant capital appreciation from tightening spreads. Because of this, we desire to generate the vast majority of the return from earnings on this atmosphere. This give attention to higher-coupon bonds and shorter-dated securities can assist scale back the volatility and add some defensiveness to the portfolio, whereas nonetheless pursuing aggressive complete returns.
Discover out extra at Aegon Asset Administration
*Aegon Asset Administration as at 31 March 2024
All information is sourced to Aegon Asset Administration except in any other case said. The doc is correct on the time of writing however is topic to vary with out discover.
Aegon Asset Administration UK plc is authorised and controlled by the Monetary Conduct Authority.Â
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