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).

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

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.

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.

Regulatory insight

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.

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.

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.

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.