As a group, how have you been boosting your investment capabilities, including taking advantage of technological advances in areas like AI?
Aegon Asset Management (Aegon AM) is currently progressing technological advances, including Generative AI (GenAI). We are looking to employ GenAI to empower some of our analysts on our alternative fixed income & structured team. While not having a material impact on investment decisions, it's anticipated to aid their research process by reducing the time spent as well as potentially uncovering difficult-to-find information. We anticipate that the learnings from this example may be applied to other scenarios across the firm once they are developed. We will continue to investigate how we can drive efficiencies and productivity gains from the adoption of GenAI capabilities.
What do you see as the big opportunities and risks for investors in 2025? How are you responding to these in a particular strategy?
Fixed income markets in 2025 will be dominated by the evolving macroeconomic backdrop – soft landing vs hard landing – and what this means for the easing cycles of the major Central Banks. Inflation, as a driver of both market volatility and monetary policy, will be much less of a feature, with growth becoming the key focus.
Our central view is for a moderation in growth with inflation close enough to Central Bank target levels that they can continue to cut rates through 2025. Crucially, the risk to this view is skewed to the downside; where growth slows more sharply and interest rates need to be cut by more than currently expected. This would be supportive for fixed income returns but would require an active approach to achieve the best risk-adjusted returns. There are three key positions we would focus on to take advantage of this outlook: increased duration, steeper yield curves, and investment grade corporate bonds.
Duration risk has historically performed well in the first 12 months of a rate cutting cycle; given our bias towards downside vs upside risks, this supports a preference for having more, rather than less, interest rate risk. Given how flat yield curves are, the macro backdrop and growing political/fiscal concerns favour exposure to shorter-dated bonds – we expect them to outperform longer-dated bonds as yield curves steepen. Finally, investment grade corporate bonds offer an attractive yield for the credit risk you are taking – and if the economic picture was to darken, they should be relatively well protected.
The key risk to the outlook would come from a reacceleration of inflation that stops the easing cycle in its tracks. For that reason, the potential impact of trade tariffs and geopolitical risk will have to be watched closely as the year progresses.
What are your priorities as an asset manager for the year ahead?
There are three main priorities for the year ahead:
i. LTAF Investment Solution Launch
We are preparing to launch our Long-Term Asset Fund (LTAF) solution by the end of H1 or the start of H2 2025. This will offer new opportunities for long-term investors while meeting regulatory standards.
ii. Momentum in Top-Performing Asset Classes
We will continue to build on the momentum within our top-performing asset classes, capitalising on strong market positions to deliver optimal performance for our clients.
iii. Aegon for Income
Our business remains firmly focused on generating sustainable income for our clients, a cornerstone of our approach in today's evolving markets.
Additionally, we will deepen our commitment to responsible investment by further integrating ESG factors and maintaining our active credit management to effectively manage risk and capture opportunities.
These priorities position us to deliver consistent value and meet the evolving needs of our clients.
