Aegon AM House View Q2 2022: US Equities and REITS look attractive

by | May 4, 2022

US Equities and REITS look attractive according to Aegon AM’s latest house view Aegon Asset Management has updated its asset allocations for Q2 2022, moving US equities, REITs and investment-grade debt to overweight.

Meanwhile the firm has reduced allocations in securitised debt, Japanese and Chinese equities, USD and Yen. Aegon has also moved EUR from underweight to neutral.

Looking ahead, inflation will dampen consumer and business confidence and put economic growth at risk, says Olaf van den Heuvel, Head of Multi Asset & Solutions at Aegon AM.

Van den Heuvel says: “Inflation will move even higher and disposable incomes will be significantly impacted. Consumer and business confidence have declined, which is an additional risk to economic growth. Continued global disruption of supply chains has increased the risk of a spiral in wage and price inflation.

“The shift in tone from central banks has impacted financial markets and risks assets have reacted accordingly. The war, the commodity spike and monetary tightening could lead to higher credit losses. Equities have been equally unstable.

“Going forward, we believe the markets will continue to be affected by sentiment regarding the path of the war, and more broadly, the effects this has on global economic growth and inflation.”

Overall asset classes

Van den Heuvel says: “Our neutral score across all main asset classes represents a more cautious tone. Increased hawkishness by major central banks despite the war shows a clear shift to combat inflation. Yields across fixed income have pushed higher as a result.

“Although we see equities at attractive valuations, we anticipate further volatility as corporate earnings face headwinds and global growth slows. We prefer to be selective with risk within each asset class, such as within credit markets where opportunities have appeared after a re-widening of spreads.

“Commodity prices spiked sharply in the first quarter as investors digested the war and how it would affect commodities—particularly for Europe which has become overly reliant on Russian gas. Prices may fall however, if we see conflict resolution. We therefore continue to hold a neutral score in commodities.”

Fixed income

On fixed income, Aegon AM remains underweight in developed world government bonds while moving to overweight in investment grade as central banks have exercised their inflation-targeting abilities by tapering bond purchasing and hiking interest rates.

“Broadly, the pace at which central banks have chosen to taper, particularly the Fed, has surprised the market, and yields have risen accordingly,” says Van den Heuvel.

We expect this trend to continue as central banks look to quell inflation, given they may need to increase hawkishness further if war continues, commodity prices stay high and supply chains remain dislocated.

“We are overweight credit and high yield however, where we see pockets of opportunity. Uncertainty around economic growth has caused a backup in spreads, but we expect in the short term there will be room for tightening given attractive valuations and low default rates in high yield.

“Securitised debt has been brought down to neutral, as we have benefitted from its lower duration. As interest rate hikes are being priced in, we prefer exposure to marginally higher duration credits.”

“Within equities, the outlook on US equities and REITs has been revised from underweight to overweight. Japanese equites have moved to underweight while Chinese are now neutral.

“Despite an aggressive path to normalisation by the Fed, we believe the US market will stay firm, buoyed by above-trend economic growth, earnings resilience, and a pickup in share buybacks and M&A activity.

“We are less confident on the path for Japanese equities and have consequently moved its score to underweight. We acknowledge that from a valuation perspective the market is more attractively priced, but we feel real earnings are higher and corporate earnings are in danger of not being met.

“We have reduced Chinese Equities from overweight to neutral. We do not expect the effects of easing fiscal or monetary policy and improving regulatory pressures to come into effect until the second half of the year. In the interim, China’s determination to keep its no-Covid policy will impact short-term growth and consumer spending negatively.

“Our score for REITs moves to overweight. Fundamentally, we prefer the sector as transactional demand remains strong as Covid-19 policies diminish globally and inflation-linked rental income currently outweighs the negative implications of a rising rate environment.”


USD has gone from overweight to neutral while EUR moves up to neutral and Yen is shifted down to underweight.

“In the near term, we expect selective strength might endure, supported by growing Fed hawkishness and economic resilience to the war. However other factors such as overvaluation, crowded positioning, stretched external balances and Fed repricing will become increasingly less beneficial.

“In contrast, we have moved our EUR scoring from underweight to neutral. The market is now significantly underweight, and any incremental positive news regarding the war or commodity security could see a meaningful squeeze on inflows.

“In the Yen, we continue to see headwinds: negative impacts of being a commodity exporter, widening interest rate differentials and broad expectations that the Bank of Japan will maintain its dovish stance while other G10 central banks tighten. As a result, we have consequently decided to move our score for the Yen to underweight.”

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