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.

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).

Making an impact

on the economy and society

By investing in (guaranteed) alternatives investors will have the possibility to have direct impact on the real economy, support the development of future proof infrastructure and finance development aid.

The role of alternative fixed income in institutional investment portfolios

Many institutional investors are struggling to maintain funding and solvency ratios in the current market environment, with record-low interest rates and risky assets still recovering from the coronavirus crisis. The traditional road to recovery is to enhance the expected return by increasing the risk budget, for instance by shifting from fixed income to equity investments.

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.

Impact investing: an attractive return without extra risk

As yields on sustainable investments keep moving lower, it is increasingly challenging for institutional investors to achieve both their return and sustainability objectives. Investing with impact, an attractive yield and no extra risk, though, is possible.

Alternatives: our key capabilities

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.

Subordinated Loans

The ALF fund, short for ‘AEGON Achtergestelde Leningen Fonds’ (i.e. Subordinated Loan Fund), is a specialty fixed income investment fund that invests in subordinated loans to Dutch small and medium-sized enterprises (SMEs). It was developed by NLII in close cooperation with the banks and the Dutch government. The Dutch government and the 'European Investment Fund' (EIF) wishes to stimulate economic growth and SME financing, and therefore guarantee 50% of losses on the principal amount of the subordinated loans.

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.

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.

Uncovering attractive new sources of additional yield

Webinar Series - 1, 8 & 15 July, 2020

Amidst the recent turmoil, Alternative Fixed Income strategies have continued to generate attractive and stable yields. ESG and impact considerations have also gained heightened relevance through the pandemic. Can we truly meet yield, ESG risk and impact objectives simultaneously? Join our host, Gerard Moerman, Head of Investment Solutions, in a webinar series as he debates with industry experts' alternative sources of additional yield for client portfolios and how these can also achieve positive impact while managing ESG risk.

Wednesday July 1, 11.00 – 11.45 CET

The first of three webinars starts with Gerard being joined by Egbert Bronsema, Portfolio Manager European ABS to discuss the attractive yield this strategy can offer as you move down the rating spectrum. Brunno Maradei, Global Head Responsible Investments shares with Gerard his observations on how ESG factor analysis can also be fully embedded within this asset class.

Playback recording >

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Wednesday July 8, 11.00 – 11.45 CET

There are about 1,000 liquid credit names that raise funding in the capital markets via bonds, but there are almost 25 million companies in Europe that finance themselves via loans in private markets. Frank Meijer, Aegon AM's Head of Alternative Fixed Income, joins Gerard to review new high-yielding and guarantee-backed opportunities that are emerging in this sector. Brunno also joins Gerard to discuss how these investments can be aligned with impact objectives.

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Wednesday July 15, 11.00 – 11.45 CET

Loans with the aim of having a positive impact, such as renewable energy, financing hospitals in developing worlds and Covid-19 related loans, all bear credit risk. There is, however, a universe of investment opportunities where this credit risk is taken by a government body, making them "government guaranteed Impact Loans". These Loans often come with an attractive illiquidity premium. Gerard discusses with Brunno and Jan Willem Wellen, Portfolio Manager Alternative Fixed Income, how this market is evolving and what kind of positive impact this kind of strategy can have on society and the environment.

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