Aegon Asset Management has launched a new financials fund for investors looking to get a steady income with some growth potential from investing through the bonds of global banks and financial institutions.
The Aegon Financial Credit Opportunities fund will be managed by Alex Pelteshki and head of UK fixed income Iain Buckle, who will work with four credit analysts. They will invest in ‘capital securities’, a type of debt that banks issue to raise money.
At least 65% of the portfolio will be invested in contingent convertibles (CoCos), which can convert into shares but can lose value if a bank runs into trouble. These bonds therefore tend to offer higher yields.
The fund can also invest in other types of subordinated debt issued by financial institutions, which are a riskier level of debt than senior bonds.
These assets often make up only a smaller allocation within traditional bond funds, but Aegon believes they warrant their own strategy.
“Although relatively complex assets, these securities are typically issued by large, well-established institutions with strong investment-grade ratings at issuer level,” the firm said in a statement.
The fund should also have relatively low sensitivity to interest rate movements, provide diversification from corporate credit and contribute to income and total return, all while investing in high-quality, heavily regulated issuers.
Pelteshki and Buckle will look for overlooked opportunities that offer asymmetric returns, with the fund holding between 40 and 100 positions.
Iain Buckle said: “As we build on our fixed income expertise and offering, creating a dedicated strategy designed to provide investors with targeted exposure to financial credits, a rapidly evolving and increasingly important segment of the market, was a natural next step.”
Alex Pelteshki added: “With differentiated risk characteristics and income potential, capital securities can represent a compelling opportunity – particularly for investors focused on generating income, whatever the market environment.”