November Summary

Transcription

1 Sadasdasd November 2016 The summer slumber in markets has ended. After October s global sell-off in government bonds and the sharp drop in sterling, investors need to brace themselves for further risk events in November, including the US presidential election, central bank meetings and the OPEC meeting on November 30. Summary On a tactical 3-month horizon, we maintain our overweight in fixed income, our underweight in equities and have a neutral position on alternatives. Central bank buying programmes continue to be the biggest positive drivers for the fixed income asset class. However, the lows in yields may soon be coming to an end. We are underweight in government bonds. Financial markets expect that the ECB will soon encounter a shortage of eligible bonds and be forced to reduce its purchases or change its own rules. We expect the latter to happen. We are positive on investment-grade credits overall in both the US and in Europe. Within high yield, we are overweight in leveraged loans. Our securitized positioning is neutral, with a preference for US securitized given attractive valuation and continued support from the Fed. Our stance on equities has become more negative due mainly to the US market, where we see increasing pressure on corporate profit margins. In Alternatives, we are close to neutral on REITs and prefer oil given the signs of forthcoming production cuts. Figure 1: The table shows our asset class overweights and underweights as percentage on a tactical three-month horizon. The percentage reflects the relative weighting of the different asset classes within our model portfolio. Source: Aegon Asset Management.

2 Fixed income Government bonds The biggest positive driver for fixed income continues to be central bank buying programs. In the near term, however, we may be reaching lows as far as is concerned due to less dovish comments by Fed and ECB officials recently. We are still underweight in government bonds as we consider sovereign bond yields in the developed world to be too low. We think the US economy will continue to expand at a relatively slow pace. Sentiment and technicals are neutral. Treasury yields are very expensive from a historical perspective, but still cheap on a relative basis when compared to other developed economies sovereign rates. Recent economic data from Europe has on balance been encouraging, with positive economic surprises especially from Germany. Sentiment has gone from slightly positive to neutral, though valuations on a tactical basis are negative. Fundamentals have become a bit more negative since last month due to the sharp rise in inflation in the UK (though inflation still remains below target). The recent rise in gilt yields brought support to an oversold market. Limited supply over the next few months could support yields further. That said, UK government bonds are still at rich valuations on a historical basis. Japanese growth continues to disappoint. The 10-year rate is still trading below zero as investors are worried about a further squeeze in this market. Valuation is therefore unattractive. The short end of the curve is very flat, forcing investors to move up to 20-plus-year paper in search of yield. Local Japanese investors continue to buy overseas bonds as the yield difference has increased. Investment grade We are positive about investment grade credits overall. In the US, the positive macro environment is supportive of this asset class as fundamentals (liquidity) deteriorate. In October BBB behaved better than single A. In Europe, technicals are currently driving investment-grade credits. The ECB s Corporate Sector Purchase Programme (currently around 2.5 billion euro a week) combined with limited net supply are creating a very strong positive tone in this market. We continue to see increased demand for highly rated paper due to regulation. We expect flattening at the long end of the curve due to hedging by institutional investors. November may see some new issue volume, which could slow down the spread- tightening. In the UK, the Bank of England has also bought corporate debt. The pace of the purchases has been much higher than what the market anticipated. So far, the market has been sanguine about that, but it s something we will be monitoring. High yield We are neutral on high yield. Fundamentals and valuation are slightly negative. Within this asset class, we are overweight on leveraged loans. Within US high yield, fundamentals are negative, reflecting concerns about slow global growth. Valuations are also negative as spreads are trading inside the long-term average. Companies beat expectations in the third quarter so we still think US high yield is relatively attractive compared to other asset classes. The supply calendar for the rest of this year looks thin, so flows have slowed.

3 For European high yield, things are not rolling over as fast as we had thought. Issuance is limited. Recently we have seen a bias in favour of the BB space, but that may be coming to an end. Valuation is stretched at current levels and spreads have tightened materially, making it hard for us to get enthusiastic about European high yield at the moment. Emerging market debt We are constructive on emerging market debt. This asset class has three levers to keep it going: a lot of flexibility in market policies (particularly fiscal) to maintain growth, the growth differential compared with developed markets, and institutional investors hunt for yield. Saudi Arabia surprised markets in October with its first-ever bond issue (USD 17.5 billion), which also happens to be the largest-ever bond issue. The move is part of the kingdom s goal to reduce its dependence on oil money. Securitized Our securitized positioning is neutral. We prefer US securitized over EU securitized assets because the US sector can take advantage of the strong local economic conditions and continues to get support from the Fed. The fundamentals in the US remain strong: residential and commercial real estate are in good shape. Overall there will be negative net supply this year. In European securitized, there has been a significant tightening of spreads since Brexit. New issuance is picking up, but with limited purchases from the ECB so far. The primary market has been dominated by non-repeat issuers. In Italian RMBS, we have seen a rise in delinquencies. Equities Our more negative stance on equities this month is driven to large extent by US equities where we see modestly rich valuations and fundamental headwinds from increasing pressure on companies profit margins. In terms of technicals, Japan has turned positive, while Europe is back to neutral. In Europe, the current stage of the macro cycle is supportive for equities. Valuations are mixed and slightly negative on average. In the UK, equity returns are highly dependent on the pound exchange rate. Alternatives REITs We are close to neutral on listed real estate as the potential for a future rate hike by the Fed remains high and sentiment for this asset class is negative. Valuations are quite positive: the implied yield at which Asian REITs are trading is above average and globally REITs are trading at a 10% discount to NAV, which we think supports the near term of the market. Commodities Within commodities we prefer oil due to the agreement by OPEC to cut production and signs that global inventories are falling. Both will be positive drivers for oil markets until the next OPEC meeting later this month. This comes on the back of already higher oil prices. As a result, we have increased our score for fundamentals.

4 Commodities ex-energy Concerning other commodities, our valuation score is neutral. The potential strength of the dollar could lead to downward pressure on ex-energy commodity prices. Sentiment and technicals are negative. About the House View Aegon Asset Management operates from centers of expertise in North America, the UK, Continental Europe and Asia. The Aegon Asset Management House View is updated on a monthly basis, and is an excellent example of how we leverage our international expertise. First, we collate a global set of asset class views from our international teams. The asset class views are subsequently reviewed from macro, rates and asset allocation angles and an overarching committee then establishes the global House View. The outcome of this disciplined global process provides portfolio managers with latitude while at the same time ensuring that our products and solutions remain aligned.

5 Disclaimer The content of this document is for information purposes only and should not be considered as a commercial offer, business proposal or recommendation to perform investments in securities, funds or other products. All prices, market indications or financial data are for illustration purposes only. Although this information is composed with great care and although we always strive to ensure accuracy, completeness and correctness of the information, imperfections due to human errors may occur. Therefore, no rights may be derived from the provided data and calculations. Aegon Investment Management B.V. is registered with the Netherlands Authority for the Financial Markets as a licensed fund management company in the Netherlands. Kames Capital plc (Company No. SC113505) is registered in Scotland at Kames House, 3 Lochside Crescent, Edinburgh EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Conduct Authority.