Aegon Strategic Global Bond Fund - Q1 2021 Review A sub fund of Aegon Asset Management Investment Company (Ireland) plc
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For professional investors only
Aegon Strategic Global Bond Fund
Q1 2021 Review
A sub fund of Aegon Asset Management Investment Company (Ireland) plc
The Fund returned -0.25% over the first quarter of 2021, outperforming peer
group median return of -1.40%.*
The first quarter of 2021 was another remarkable period although, thankfully, it was not
nearly as damaging for the general population and the overall economy as the first three
months of 2020. Nevertheless, the moves we witnessed over the quarter in some parts of
the market brought back memories of ‘taper tantrum’ episodes from several years ago.
Colin Finlayson Most noteworthy was the rise in 10-year US Treasury yields, which sold-off by around 84bps
Co-manager of the Fund during the period, nearly doubling the level where they finished 2020. The move was driven
by a combination of more positive news on the economic front, Covid-19 vaccine rollouts
across the developed world, and from fears about the sheer size of supply that would have
to be absorbed by the market following President Biden’s $2 trillion+ fiscal stimulus pledge.
Along the way, the slope of the US Treasury curve continued to steepen aggressively. This
meant that exposure to the longer-dated end of the US bond market would have been even
more detrimental to portfolio returns than what may be implied by merely looking at the
10-year US Treasury bond yield change.
Alexander Pelteshki
Naturally, total returns across the investment grade credit space were deeply impacted by
Co-manager of the Fund
this nearly doubling of US Treasury yields (and the similarly directed move in most other
developed markets). They were further exacerbated by the already deeply depressed credit
spreads on offer across bonds, which proved insufficient to absorb the large move wider in
yields. As a result, total returns in US and EU investment grade indices were down more
than 2% for the quarter, posting the worst start to a year in at least a decade.
In contrast, the high yield corporate bond market took the rise in yields in its stride, mostly
brushing off the all-time lows in yields that major high yield bond market indices reached,
and instead focusing on the positive economic signalling that transpired along the way. As a
result, the asset class posted a solid quarter with positive total returns across the board and
a further squeeze in credit spreads.
We started the year with a cautious view on the outlook for total returns in investment
grade credit markets globally. As a result, we continued to reduce aggressively our exposure
to the long end of the investment grade credit markets and instead focused on the 4 to 7-
year part of the curve, and on issuers that stood to benefit from a gradual reopening of
economies. As expected, the grind tighter in investment grade credit spreads was not nearly
enough to offset the rise in government bond yields.
Instead, we tilted the Fund heavily towards the high yield sector, where we favoured
shorter, rather than longer, duration bonds. We also held overweight positions in financials
and a selection of cyclical sectors that would benefit the most from both a yield curve
steepening and an economic recovery.
We continue to focus on picking up alpha this year while avoiding market beta. We simply
do not believe that we are compensated to take on additional generic market risk at these
levels. On the government bond side, we reduced interest rate risk meaningfully over the
quarter; it was approximately 5 years lower than in the fourth quarter of 2020 ahead of the
vaccine announcements.
This move shielded the Fund’s returns from the rising yields in the government bond
markets. In addition, we continued to run our long-standing curve steepening positions in
US Treasuries, which was a further compliment to Fund performance. Our cross-market
positioning was mostly additive as we were able to benefit from a slew of relative value
opportunities, such as long Italy / short Germany in Europe.
Aegon Strategic Global Bond Fund
Q1 2021 Review
A sub fund of Aegon Asset Management Investment Company (Ireland) plc
As we move into the second quarter of 2021, extracting decent returns from the markets will likely be equally
challenging. Credit spreads in investment grade have fallen further, while those in high yield have compressed more,
indicating even less incremental capital upside from here. Entering the summer period would also coincide with a strong
base effect in the energy space, which will leave investors wondering whether the first few inflation prints are just an
aberration or a sign of things to come.
Long-term readers will recall that we are sellers of inflation on structural factors fundamentally. However, we do
respect that market forces can be quite violent in the short-term and we are minded to generate returns for the Fund in
all market conditions. Hence, we enter the period with a lower overall interest rate and credit risk than the Fund’s 3-
year average, but we stand ready to adjust our positioning should the conditions necessitate.
*Source: Lipper as at 31 March 2021. Performance shown is for the B USD Inc share class. NAV to NAV, noon prices, income reinvested, net of ongoing charges, excluding
entry or exit charges. Past performance is not a guide to future returns. The Funds are incorporated in the following Lipper Global peer groups - Aegon Strategic Global
Bond Fund is in the Bond Global sector, Benchmark and sector median source: Lipper.
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Aegon Strategic Global Bond Fund
Q1 2021 Review
A sub fund of Aegon Asset Management Investment Company (Ireland) plc
For Professional Clients only and not to be distributed to or relied upon by retail clients.
The principal risk of this product is the loss of capital. Please refer to the KIID and/or prospectus or offering
documents for details of all relevant risks.
Past performance is not a guide to future performance. Outcomes, including the payment of income, are not
guaranteed.
Opinions represent our understanding of markets both current and historical and are used to promote Aegon
Asset Management UK’s investment management capabilities: they are not investment recommendations,
research or advice. Opinions and/or example trades/securities are only present for the purposes of
promoting Aegon Asset Management UK’s investment management capabilities. Sources used are deemed
reliable by Aegon Asset Management UK plc at the time of writing.
Fund Charges are taken from income but will be taken from capital where income is insufficient to cover
charges.
All data is sourced to Aegon Asset Management UK plc unless otherwise stated. The document is accurate at the time of writing but is subject to change without notice.
Data attributed to a third party (“3rd Party Data”) is proprietary to that third party and/or other suppliers (the “Data Owner”) and is used by Aegon Asset Management UK
plc under licence. 3rd Party Data: (i) may not be copied or distributed; and (ii) is not warranted to be accurate, complete or timely. None of the Data Owner, Aegon Asset
Management UK plc or any other person connected to, or from whom Aegon Asset Management UK plc sources, 3rd Party Data is liable for any losses or liabilities arising
from use of 3rd Party Data.
Aegon Asset Management UK plc is authorised and regulated by the Financial Conduct Authority.
Aegon Asset Management Investment Company (Ireland) Plc (AAMICI) is an umbrella type open-ended investment company which is authorised and regulated by the
Central Bank of Ireland.
Aegon Asset Management UK plc (Aegon AM UK) is authorised and regulated by the Financial Conduct Authority. Aegon AM UK is the investment manager for AAMICI and
also the marketer for AAMICI in the UK and otherwise outside of the EEA. EEA marketing is undertaken by the following named Aegon Asset Management affiliates: Aegon
Investment Management B.V. which is registered with and supervised by the Dutch Authority for Financial Markets (AFM); Aegon Asset Management Pan Europe B.V.
(AAMPE) Germany branch, which markets AAMICI in Germany, Austria and Switzerland. AAMPE Germany branch is registered with and supervised by the AFM and
supervised by BaFin in Germany and AAMPE Spain branch which markets AAMICI in Spain, Italy and Switzerland. AAMPE Spain branch is registered with and supervised by
the AFM and is supervised by the CNMV in Spain.
For investors in Austria, Germany, Luxembourg, Malta, the Netherlands, Spain, Sweden, Portugal, Italy, the UK, Jersey, Guernsey and Belgium - AAMICI's relevant sub-
funds are notified to each regulator. The prospectus, supplements, key investor information and reports (together ‘Disclosures’) are available at www.aegonam.com along
with information about paying agents. For Switzerland, AAMICI is a UCITS which is authorised for distribution by FINMA as a Foreign Collective Investment Scheme. The
Disclosures are available from www.aegonam.com or from the Representative and Paying Agent in Switzerland, CACEIS (SA) Switzerland, Chemin de Precossy 7-9, CH-1260
Nyon / VD, Suisse, Phone: +41 22 360 94 00, Fax: +41 22 360 94 60.
Please note that not all sub-funds and shareclasses may be available in each jurisdiction. This document is marketing and does not constitute an offer or solicitation to buy
any fund(s) mentioned. No promotion or offer is intended other than where the fund(s) is/are authorised for distribution.
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