Aegon Asset Management is a finalist in this year's Fund Manager of the Year Awards in four categories including: £ Strategic Bond, £ Corporate Bond, £ High Yield Bond and Global Income.
Here, Investment Week hears from Colin Finlayson, Investment Manager and Alex Pelteshki, Investment Manager at Aegon Asset Management, about the team running the Aegon Strategic Bond Fund, the key to their investment process and how the team negotiated difficult market conditions at the start of 2022.
Can you give a brief overview of the team running the fund and the resources available?
The Aegon Asset Management fixed income platform brings together 144 investment professionals, managing £150bn across core fixed income, leveraged finance and alternative fixed income. The Aegon Strategic Bond Fund is managed by multi-sector portfolio managers Alexander Pelteshki and Colin Finlayson. Alex and Colin have over 35 years combined experience in financial markets and bring a complimentary skill set to the helm of the fund. Alex has a background focusing predominantly on credit markets and macro asset allocation and Colin has extensive experience in rates markets and macro asset allocation. The management team are well supported by the wider fixed income platform with crucial support coming from our Global Research Team. Consisting of over 50 analysts, the research team are responsible for bottom-up idea generation across developed and emerging public credit and rates. The research team also includes expertise in distressed debt and bank loans.
What is key to your investment process on the fund and what are you trying to offer investors?
The Aegon Strategic Bond Fund seeks to offer investors an actively managed, fixed income fund navigating markets in an unconstrained and flexible manner. We take a total return approach, aiming to deliver returns through six sources of alpha. Equally, we place an unwavering focus on protection of capital, limiting drawdowns of the fund and ultimately aiming to deliver compelling risk-adjusted returns for our investors.
The key to our investment process is flexibility in our portfolio management. We have access to a range of instruments and markets to express our investment views, to capture upside where there is value to be sought and minimise drawdowns. We invest both strategically, investing for long term value, but also have the ability to tactically adjust the portfolio through several means to take advantage of shorter-term market opportunities or to protect the fund in times of market stress.
The portfolio has a high conviction approach but remains diversified across issuers, sectors, and geographies. Behind our concentrated portfolio sits a dedicated and experienced research platform feeding investment ideas to portfolio managers. The scale and depth of our research capability allows us to be rigorous in our fundamental analysis and take higher conviction positions in the portfolio.
How did the team negotiate difficult market conditions at the start of 2022 and what is the longer-term impact for the strategy?
Over the course of the quarter, we were very active in managing duration to cater for an ever-changing macroeconomic landscape. Portfolio duration was limited in January and gradually increased to a neutral position as rates markets sold off. Alongside headline duration, we closed a US curve flattening position in March as the 5s/30s yield curve inverted.
In credit, our risk allocation was low in January and gradually increased in March as credit spreads hit recessionary levels. We believe that spread levels currently offer value for investors on a medium-long-term horizon; corporate balance sheets (and household) are strong, cash-rich and liquid, and implied interest coverage ratios are at multi-year highs.
We continued to focus on stock selection as a key source of alpha over the period, identifying strong, resilient companies through our robust analysis process. Relative value switches between issuers, currency and capital structure, to name a few, has also been paramount generating value and income for the portfolio
Can you highlight a couple of interesting investment opportunities for the fund going forwards? How are you gaining exposure?
We expect to continue to see elevated volatility until the end of the year, albeit we think it will slowly diminish from the highs seen in Q1. Central bank words and actions will continue to be the dominant market driver.
We are unlikely to have seen the full repricing of government bond markets. This means that we are unlikely to have seen the full impact on risk assets either. However, investment grade bonds are beginning to look more attractive on a total-return basis, after a dismal start of the year, while high-yield bonds have room to reprice wider if the slowdown becomes more pronounced. From a management perspective, the violent market repricing has opened-up more opportunities to capture alpha as well as to protect capital.
Tactical opportunities are very likely to arise on either side of our positioning over the year, and we prefer to approach opportunities from a more balanced stance to manage both upside as well as downside risks at these higher levels.
The winners of this year's Fund Manager of the Year Awards will be announced at the in-person award ceremony on 23 June in London. Visit the website for more details: www.fmya.co.uk
