Alexander Pelteshki, Portfolio Manager at Aegon Asset Management answers questions about the Aegon Strategic Bond Strategy at the Channel Island Event
What are you trying to achieve for investors and what role could your fund play in an investor's portfolio? How do you structure this fund?
Our strategy is designed to be investors' foundational, permanent allocation to fixed income through the cycle. For this reason, we keep it very simple and stick to traditional publicly listed fixed income securities from well recognized government bodies, investment grade and HY corporate credit as well as emerging market corporate credits. In order for us to be the foundational fixed income allocation for investors, therefore, we need to 1) do better than anything else that investors can readily buy themselves (ETF bond proxies, other similar actively managed funds) and 2) ideally deliver these returns with zero correlation to equities. If we managed to achieve both, then we have created an exposure to the fixed income markets that should be superior to anything else readily available, while allowing our clients to focus on the other bits of their portfolios without having to worry about cross asset correlation.
What are the big opportunities and risks for your strategy in 2025?
The big opportunities for our strategy is similar to what we saw last year, but the risks are much more pronounced. We very much like the fixed income markets here. Investment grade indices yield not far from 5% and HY ones not far from 8% (In USD terms), which are historically very attractive levels. At the same time, credit spreads were/are at multi year tights – we have not seen the market so expensive in a very long time. We think the high all in yield breeds complacency but the tight level of spreads highlights the dangers to index investing or passive investing in bonds. In other words, there has hardly been a better time to be a genuinely active bond fund manager. We aim to extract above market (as measured by the indices above) level of yield this year while not being exposed to the extremely tight level of credit spreads.
Can you identify a couple of key investment opportunities you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
We are big fans of the debt of Metro Bank. As a general rule we seek investments whose performance is not contingent on the overall market doing better, but rather opportunities that have 1) self-help improvement trajectory and 2) have plenty of spread compensation in them in order to provide a sufficient margin of error. Metro bank fits the bill for us in 2025 in both respects. The credit has been through some turbulent times, but management has been on the front foot addressing the issues proactively. We expect the credit to materially improve in 2025 simply due to passage of time and there is a lot of spread still on offer to cushion any unexpected delays in the execution of the business plan.
Alexander Pelteshki is the Portfolio Manager for Aegon Strategic Bond Strategy at Aegon Asset Management
