The Olympics – where athletes defy gravity, national pride soars, and corporate sponsors dream of stock market glory. Despite the first modern Olympics being held in Athens in 1896 the man responsible for the rebirth was a Frenchman called “Pierre”.

Over the last few days, three of the major Central Banks – Bank of England, Bank of Japan and US Federal Reserve - have completed their rate setting meetings – and each has had a different outcome: up, down and no change!

Investor allocations to bonds have been low in recent years with many investors preferring to hold cash or money market funds instead. In the period of low/rising bond yields and high deposit rates, this made perfect sense. Now, as we enter the next phase of the interest rate cycle, this is no longer the case.

So far, much of 2024 has been a waiting game with the market focused on US inflation and when it might spur the Federal Reserve (Fed) to cut interest rates. However, there have been signs that the Fed’s string of rate hikes may finally be bringing inflation under control. Monthly inflation was flat in May—its lowest level since July 2022—which helped push the year-over-year inflation rate down to 3.3% from 3.4% in April. 

In the latest Strategic Thinking video, Alex Pelteshki, co-manager of the Aegon Strategic Bond strategies, discusses the current market environment with central bankers across both sides of the Atlantic rushing to repeat that the path of their policy rates is exclusively data dependent from here on. Alex also talks about the market reaction and the outlook for fixed income, explaining why the team believe there is room for the US Treasury Yield curve to become steeper by year end, making it one of the biggest opportunities out there.

The dust is settling on a historic election result. A Labour landslide on the scale of 1997 gives new Prime Minister Sir Keir Starmer a huge majority and leaves the Conservatives licking their wounds, having gained their lowest share of the vote and lowest number of MPs ever. The reaction of financial markets was less spectacular though.

Hot on the heels of Meta Platforms, tech giant Alphabet has joined the dividend game. Both companies’ join Microsoft, Apple and Nvidia as ‘big tech’ dividend payers. Beneath the surface more tech dividends are emerging, with Salesforce and Booking.com having their dividend debuts in 2024. This is a significant development for a space with a long-held preference for buybacks. 

For income-oriented investors, now is the time for bonds. As rates have shifted higher, coupon rates on newly issued bonds have continued to climb higher, offering income opportunities rarely seen in recent years. Notably, we think high yield bonds are worth a closer look as they provide high income and compelling total return potential. 

Back in 2020, I penned an article titled ‘The Dividend Dilemma’. It was the depths of the Covid-induced market selloff; companies were cutting or suspending dividends left, right and center; and analysts were predicting big cuts to global dividends from which they would take years to recover. I anticipated a fall of around 30%.

High yield and investment grade credit markets continue to look very attractive on a multi-year horizon. In fact, we find the market as attractive as it has been in nearly two decades. High yield looked great at the tail end of 2023 with the yield-to-worst on the Bloomberg U.S. High Yield Corporate Index pushing over 9%. At end of March 2024, it is 7.7%, which is still above 15-year averages. Likewise, yields in investment grade credit also look appealing. The yield-to-worst on the Bloomberg U.S. Corporate Investment Grade Index is above 5%, again a multi-year high. This still represents a good starting point and is also one of the main reasons we are positive on bonds this year.

The maturity wall has been a hot topic lately—and rightfully so. After all, the ability of issuers to repay their debt obligations is a key consideration for bond investors. And assessing the upcoming maturity schedule becomes even more critical for high yield companies, some of which may face strained liquidity or challenges accessing capital markets.

In the latest Strategic Thinking video, Colin Finlayson, co-manager of the Aegon Strategic Bond strategies, examines recent dynamics within the fixed income market, particularly the divergent performance between government bonds and corporate bonds. He discusses what’s driving this dynamic, if it’s likely to continue and what this means for the Aegon strategic bond strategies.

Rising rates have led to attractive yields across the fixed income market. However, corporate credit spreads are tight. This leaves many investors grappling with the valuations conundrum, as they debate yields versus spreads to determine their fixed income allocations. Will slowing economic conditions result in spread widening? Do higher yields provide a sufficient cushion against downside risk? And is now the time to add fixed income exposure?

Since its launch in 2014, the Aegon Diversified Income Fund has delivered an average level of income of 5.2%* per annum despite the challenges of the macro environment. This was also a decade when investment practice and the regulatory framework around ESG saw great change.

2024 sees the Aegon Diversified Monthly Income Fund reach it’s 10-year anniversary, and with it an enviable track record of successfully delivering a yield that has averaged more than 5%*, irrespective of the macro and market environment. 

Much was written about the ‘Magnificent 7’ last year and rightly so - the cohort of US mega cap, tech related stocks accounted for around 80% of the total returns of the S&P 500. But there was another Magnificent 7 that was much closer to home for the Aegon Global Equity Income team. 2023 saw the Fund post its seventh consecutive year of above median performance versus its Lipper peer group*, which is an achievement we are very proud of, especially given the range of market conditions faced over that time.

The final two months of 2023 were among the strongest on record for global bonds. The catalysts were expectations of imminent global central bank easing combined with growth holding up quite well. The result was that all asset classes fundamentally repriced the investment outlook, and bonds were not left behind.

There have been two standout themes in global equities in 2023: the outperformance of the so called 'magnificent seven' US mega-cap tech stocks (without which US indices would have underperformed), and the Japanese stock market. There were also two standout underperformers - China and the UK. Will these trends continue in 2024?