The second quarter began stormily with “Liberation Day. President Trump announced significant import tariffs (based on the trade balance with the country in question) on many trading partners. Stock prices and commodity prices initially went down sharply. The US dollar also suffered after a wave of selling by foreign investors of US bonds. The US bond market was gradually seen as less and less stable, and investors (for a while) preferred safe countries like Germany. For example, the U.S. trade balance arguably worsened due to the import tariffs (particularly due to an increase in imports prior to the tariffs). When Trump announced a 90-day pause on import tariffs a few days later, stock prices went back up sharply. The focus later shifted to making trade deals with individual countries. In June, the Middle East conflict flared up again after Israeli attacks on Iranian targets, with the U.S. also intervening by bombing nuclear sites in Iran. The U.S. failed to attack Iran’s oil industry. This left shipping lanes open for tankers. Financial markets were not upset by geopolitical and economic tensions last quarter. We saw a higher risk appetite among investors, reflected in a lower credit spread, and rising prices for commodities and equities. The US dollar yielded further against the euro and is now trading above 1.17.
DC Fund Investments
Aegon Diversified Fixed Income
The fund is a mixed fund that has investments in three different investment categories: government bonds (10%), corporate bonds excluding financials (40%), and Dutch residential mortgages (50%). Almost all of the excess return came from the latter category. Mortgage interest rates declined slightly less than Dutch government interest rates (which act as a benchmark) but the fund managed to pass on slightly higher interest rates to clients, making mortgage returns better than Dutch government bonds.
Aegon Emerging Market Deb
The fine return is mainly because the risk premium of EMD over risk-free government bonds fell by 0.32% from 2.78% to 2.46%. The outperformance relative to the benchmark lies in the slightly higher risk profile than the index, due to an overweighting of countries with lower credit ratings. In particular, the manager added value through positions in Ecuador, which showed very strong price appreciation over the past quarter.
Aegon Euro Long Government
The fund is a passive mutual fund that aims to approximate the return of the benchmark. European government bonds achieved positive returns. Interest rates fell for almost all maturities. The yield on 10-year government bonds from Germany fell 0.13% to a level of 2.6%. At the 30-year point, interest rates were unchanged at 3.1% at the end of the quarter. The interest rate differential between the Netherlands and Germany was also unchanged at a level around 0.2%. Dutch government bond yields were 2.8% and 3.2% at the 10- and 30-year points, respectively.
Aegon Global High Yield
The Global High Yield market had a positive quarter. The risk premium fell 0.42% to 3.13% against government bonds, outperforming a portfolio of government bonds with the same maturity profile by 1.7%. The U.S. outperformed emerging markets and Europe by 1.5% and 1.0%, respectively. The positive relative return was mainly due to a better selection of bonds within sectors (especially in banks, basic industry and consumer non-durables) while at portfolio level the sector allocation was neutral.
Aegon Emerging Market Equity
The fund achieved a return in the second quarter that was 0.39% lower than the benchmark return. Return differences among emerging countries were quite large. Korea (22.1%), Taiwan (16.0%) and Mexico (10.9%) performed very well, while China (-6.1%) and Saudi Arabia (-12.7%) lagged behind the market average. Especially the position in emerging markets Asia (especially the underweight position in the strongly performing Korea) contributed negatively to the relative performance against the benchmark.
Cardano ESG Enhanced Index
The picture for developed market equities is distorted by the depreciation of the U.S. dollar against the euro in the second quarter (9.0%). In terms of regions, returns were close together. However, growth stocks significantly outperformed value stocks. On balance, returns were equal to the benchmark, with the largest positive contribution coming from the underweighting of the energy sector; and the largest negative contribution from stock selection within the communications sector.
Source: Aegon and Cardano