Why allocate to alternative fixed income?

Attractive Yields

compared to traditional asset classes

Alternative fixed income strategies have attractive yields compared to traditional asset classes such as government bonds and corporate bonds.

Effective Risk Diversifier

low or uncorrelated exposure

Add low or uncorrelated exposure to your investment portfolio e.g. by adding consumer exposure to sovereign and corporate exposure.

Covered Structure

or government guarantee

Losses on portfolios are historically low for certain alternatives due to covered structures (e.g. Asset-backed Securities) or government guarantees (e.g. Dutch mortgages with NHG guarantee and private placements with European guarantees).

Alternative view

Key features of investing in alternative fixed income

Low interest rates and low yields from traditional investment categories have led investors to alternative fixed income as part of their search for yield. What are the characteristics of this new kid on the block and why are these investments considered attractive? The answers to these questions provide insight into the added value of alternative fixed income.

Low yields: Ideas for positioning your fixed income portfolio

Interest rates are still very low, both in absolute terms and relative to historical levels over the past decade and before. Many bond market specialists have predicted rates will rise, but increases since the historically low levels of 2016 have been very limited in Europe.

Alternatives: our key capabilities

An attractive yield with underlying guarantees

Dutch residential mortgages offer an attractive spread over the swap rate, compared to traditional asset classes such as government bonds and corporate bonds. Yet they come with a significant underlying guarantee. Residential mortgages are also an attractive risk diversifier within multi-asset portfolios and their long duration ensures a strong fit within the asset-liability framework of pension plans and insurers.

European ABS offer a high risk-adjusted yield

Our high investment grade rated ABS strategy currently yields 150 basis points above the euro swap rate. Practically all ABS bonds have a floating rate coupon, offering protection against rising interest rates, thereby providing a positive total return in a rising rate environment.

High spread compared to governments bonds

Because of the limited liquidity of these type of investments, a high spread is realized compared to government bonds. The portfolio's average rating is AA. Due to this high rating, the fund has a limited capital charge under Dutch FTK and Solvency II. As a result, the fund provides a suitable alternative to investing in government bonds while targeting significantly higher returns.

The rise of Infrastructure debt as an asset class

At present, there is a great deal of interest in real assets, including Infrastructure debt. This asset class offers institutional investors various advantages, such as a more favorable return-risk ratio than liquid corporate bonds.

Alternative view

Balance sheet management: how much illiquidity can investors handle?

In the past few years, many institutional investors have increased their exposure to illiquid assets. This raises the question of how much illiquidity an investor can handle without letting its risk profile change substantially after a financial shock. Aegon Asset Management’s Investment Solutions Center has taken a closer look.

Alternative view

The Dutch mortgage market from an international perspective

An increasing number of investors are looking at the opportunities that direct mortgage investments around the world can offer to their search for yield. However, each country has its own specific circumstances and regulations that drive the housing and mortgage market. The question then arises: how does the Dutch mortgage market compare to other major mortgage markets?

By Frank Meijer, Head of European ABS and Mortgages

The Dutch housing market: ready for headwinds?

Prices for Dutch residential real estate have been rising strongly since 2013. However, Dutch housing prices are just recently back at pre-crisis levels. If we look at the last 10+ years, the Dutch housing market does not look overvalued compared to historical standards. In fact, there seems to be room for further price increases if we compare to European peers.

A look across the border

Danish mortgage bonds versus Dutch mortgage loans

Many institutional investors are currently attracted by the potential for high yields on mortgage investments. Exposure to the mortgage market can be achieved in various ways, such as through a pool of mortgage loans or by investing in repackaged mortgage-backed securities. An interesting alternative approach is used in Denmark. In this article, we compare Danish mortgage bonds with direct investments in Dutch mortgage loans.

Regulatory Insights

In-depth articles on various alternative asset classes and their regulatory impact.

The added value of a special purpose vehicle under IFRS

The International Financial Reporting Standards (IFRS) are a set of accounting principles for listed European companies. In 2018 the introduction of IFRS 9, the accounting principles for financial instruments, had a profound impact. Shares in open-end investment funds were then typically reclassified to fair value through profit and loss (P&L), regardless of the type of investments within these funds. This can create substantial P&L volatility, especially when related liabilities on the balance sheet are still reported on book value. In this article, we explain how a special purpose vehicle enables a more flexible accounting treatment under IFRS 9, providing an alternative to an open-end investment fund.

Analysis of infrastructure debt under FTK, Solvency II and Basel III

Is infrastructure debt an attractive asset class for institutional investors from a regulatory perspective? To answer this question, we analyzed capital requirements for investors who invest in infrastructure loans and who are subject to different regulations. Dutch pension funds are subject to FTK, European insurance companies are subject to Solvency II, and banks face Basel III regulations.

Analysis of government-related private loans under FTK, Solvency II and Basel III

This article focuses on capital requirements for institutional investors who invest in government-related private loans and who are subject to FTK, Solvency II or Basel III. We discuss the stand-alone capital requirements for government-related private loans, but also the impact of these requirements on the overall balance sheet and solvency position. This provides more insight into the attractiveness of these investments, compared with other asset classes, for institutional investors.

European ABS under FTK. A match made in heaven?

We analyze the treatment of European asset-backed securities (ABS) under the regulatory framework for Dutch pension funds (FTK). ABS loans are collateralized, leading to low expected losses. The overall required capital under FTK therefore decreases if ABS are funded with credits. At the same time, the expected return will typically increase. This makes an investment in ABS an attractive alternative to credits in the current low-yield environment.

Webcast

Why allocate to alternative fixed income?

There is increasing demand for alternative fixed income from institutional investors. Especially low interest rates and low yields from traditional investment categories have led investors to alternative fixed income as part of their search for yield. Rens Ramaekers, Portfoliomanager European ABS & Mortgages, explains the possible characteristics in this webcast.

Contact Us

To find out more about our Alternative Investment capabilities in your region, please contact us directly.