CDI Portfolio Construction

Constructing a customized CDI portfolio

Aegon Asset Management US constructs cash flow-driven investment (CDI) portfolios on behalf of institutional clients. The objective of these mandates, which can vary from client to client, is to provide predictable and regular investment income from coupons, maturities and pay-downs over each period immediately prior to a required cash outflow. By analyzing a client's specific cash liabilities and leveraging the breadth of our multi-sector fixed income capabilities, we aim to construct a portfolio that not only meets or exceeds the client's return objective, but also utilizes these assets to more effectively meet shorter-term obligations.

Similar diversification, potentially higher yields

Many asset owners rely on an asset mix similar to the Bloomberg Barclays Core Aggregate Index for the fixed income exposure within their portfolio given its diverse exposure to US Treasurys, securitized assets, corporates and government-related bonds. However, over half of the Bloomberg Barclays US Aggregate Bond Index is comprised of securities that typically yield less than corporate credit or may be more sensitive to interest-rate movements. A CDI portfolio aims to provide similar or differentiated diversification to a Barclays aggregate-like portfolio while generating potentially higher yields and predictable, periodic cash flows.

Bloomberg Barclays US Aggregate Index

Hypothetical CDI Portfolio*


*As of March 31, 2019. Hypothetical examples for illustrative purposes only. Individual accounts may vary based on restrictions, substitutions, cash flows and other factors. This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that a client's portfolio will mirror the characteristics shown or any of the holdings listed were or will be profitable. As with any investment strategy, there is potential for profit as well as the possibility of loss. There is no assurance that the intended benefits stated above will be achieved. Refer to the disclosures at the bottom of the page for important information regarding the estimated yield calculations.

Targeting enhanced yields with a CDI Plus strategy

For asset owners that require a higher yielding portfolio, whether due to higher cash outflows, greater underfunding, or a generally higher risk tolerance, a CDI Plus strategy may be a more optimal fit. The "Plus" component incorporates higher allocations to high yield corporate and emerging market debt, while adding allocations to bank loans and distressed debt. The assumption of additional risk premia and enhanced yields could potentially increase portfolio risks – these risks are evaluated during the portfolio construction phase.

Hypothetical CDI Plus Portfolio*

*As of March 31, 2019. Hypothetical examples for illustrative purposes only. Individual accounts may vary based on restrictions, substitutions, cash flows and other factors. This information should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that a client's portfolio will mirror the characteristics shown or any of the holdings listed were or will be profitable. As with any investment strategy, there is potential for profit as well as the possibility of loss. There is no assurance that the intended benefits stated above will be achieved. Refer to the disclosures at the bottom of the page for important information regarding the estimated yield calculations.

Different cash flow needs require tailored cash flow solutions

Each CDI portfolio can be tailored to an organization's specific circumstances and requirements, taking into consideration cash-flow predictability, expected contributions, risk tolerance, liquidity needs, tax considerations and the overall objective of the portfolio. A CDI portfolio can be constructed for a preset time horizon or it can be rolled forward as contributions are added on a periodic basis. Annual contributions create additional flexibility in portfolio construction and offer an opportunity to buy further out on the yield curve, which potentially translates to higher yields, spreads and total returns.

Source: Bloomberg and Aegon AM US as of March 31, 2019.

Hypothetical or simulated examples have several inherent limitations and are generally prepared with the benefit of hindsight. There are frequently sharp differences between simulated results and actual results. In addition, there are numerous factors related to the markets in general or the implementation of any specific investment strategy which cannot be fully accounted for in the preparation of simulated results, yet all of which can adversely affect actual results. No guarantee is being made that results shown will be achieved.

Past performance is not indicative of future results. The estimated yield calculations shown for the CDI and CDI plus hypothetical fixed income allocations were calculated using the following market indices as proxies for asset class allocations. All yields used in the calculations are as of quarter end. The yields for each asset class were weighted by the allocation weighting to calculate an estimated yield for each investment strategy. Specific sectors mentioned do not represent all sectors in which Aegon AM US seeks investments. It should not be assumed that investments of securities in these sectors were or will be profitable.

IG Corporates: Bloomberg Barclays US Intermediate Credit Index
Emerging Markets: Bloomberg Barclays Emerging Markets USD Aggregate 3-5 Year Index
CMBS: Bloomberg Barclays CMBS 1-3.5 Year IG Index
ABS: Bloomberg Barclays ABS Index
HY Corporates: Bloomberg Barclays US High Yield Ba/B 1-5 Year Index
Non-agency RMBS: Bloomberg Barclays US Treasury 1-3 Year Index
Credit Opportunities: Bloomberg Barclays US High Yield CCC Only Index
Bank Loans: Credit Suisse Leveraged Loan Index

Aegon Asset Management US is registered as a Commodity Trading Advisor (CTA) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). Aegon Asset Management US is part of Aegon Asset Management, the global investment management brand of the Aegon Group.

This communication is being provided for informational purposes in connection with the marketing and advertising of products and services. Aegon AM is not undertaking to provide impartial investment advice or give advice in a fiduciary capacity for purposes of any applicable federal or state law or regulation. By receiving this communication, you agree with the intended purpose described above.

Important Disclosures