The Aegon High Yield Global Bond Fund reached a historic milestone in the third quarter, surpassing $1 billion in assets under management. This achievement, managed by Aegon Asset Management, reflects a threefold increase in assets so far this year.
Amid consistent fund inflows, we spoke with Mark Benbow and Thomas Hanson, co-portfolio managers, to unpack the complexities of the high-yield bond market. In the interview, they discussed current investment opportunities, the health of issuing companies, market valuations, and the strategic role these bonds can play in a diversified portfolio.
How are high-yield companies holding up in the current environment? Are you seeing signs of weakness due to slower economic growth and high rates?
Mark Benbow:
There are two ways to approach this question: from the perspective of the companies and the bonds they issue, which are not always as closely correlated as one might think. Overall, bond prices are holding up, but corporate earnings are mixed. Some areas of the market are performing well, while others are beginning to show cracks.
From a bond price perspective, the market is holding up due to demand outpacing supply, with central bank rate cuts fueling risk appetite. These technical factors have tightened credit spreads and lifted bond prices, even softening volatility episodes like the one in August. However, for companies, the picture is more mixed. Many emerged from the pandemic with cleaned-up balance sheets, solid liquidity, and strong credit metrics, enabling them to navigate inflation and uncertain macroeconomic conditions effectively. Yet beneath the surface, there are highly leveraged companies that could face challenges if high interest rates persist.
In summary, while bond prices are strong and companies are starting from a position of strength, macroeconomic pressures and idiosyncratic factors are widening the gap between the strongest and weakest issuers. This, however, creates an intriguing investment environment where careful selection is essential for differentiated returns.
You mentioned August’s volatility. How did it impact the high-yield market, and what are your expectations for the rest of the year?
Thomas Hanson:
It was a brief episode—just a few days of weakness in the lower-rated segments (CCC and below)—but the market rebounded quickly. By October 31, the global high-yield index (ICE BofA Global High Yield Constrained Index) had delivered an 8.4% return year-to-date, setting the stage for a strong annual performance.
Looking ahead, we expect—and even welcome—more volatility, as it creates buying opportunities for active managers. While it’s hard to predict specific catalysts, factors like smaller-than-expected rate cuts, refinancing challenges, or geopolitical risks could stir turbulence. Additionally, as central banks step back as primary bond buyers, volatility could rise, exposing valuation divergences and uncovering opportunities to identify undervalued securities.
With tight spreads but elevated yields, is now an attractive time to invest in high-yield bonds?
Thomas Hanson:
There are two perspectives to value this market: spreads and yields. While spreads are near historic lows, yields to maturity are around 7%. Historically, this level has been a reliable indicator of five-year annualized returns. Additionally, income remains the primary driver of long-term returns for these bonds.
Although tight spreads might persist, predicting better entry points is challenging. In this environment, we prefer to stay invested and generate income rather than waiting on the sidelines.
What specific opportunities are you identifying in the portfolio?
Mark Benbow:
Our focus is on income generation and downside protection. On the yield curve, we favor short-term bonds because the inverted curve currently pays more for three-year bonds than ten-year bonds. This not only boosts the portfolio’s yield but also reduces volatility.
Regionally, we prefer Europe and the UK over the US, given the relative valuation appeal post-Brexit. Sector-wise, we remain bullish on consumer-focused areas, supported by low unemployment, and have started adding exposure to real estate, particularly in hotels and residential assets. Rating-wise, we focus on higher-quality issuers and avoid riskier credits.
What role can high-yield bonds play in investors’ portfolios today?
Thomas Hanson:
High-yield bonds can provide high income and attractive risk-adjusted returns. In an environment where investors shift between equities in bullish phases and traditional fixed income in bearish ones, high-yield bonds can act as a hybrid. They allow for de-risking capital compared to equities or increasing income within the fixed-income portion of a portfolio, with lower sensitivity to interest rates than investment-grade bonds.
Ultimately, high-yield bonds remain a key tool to diversify portfolios, enhance income, and manage duration risk, even amid macroeconomic challenges.
This information is intended for distribution to non-U.S. persons who may or not be within the territory of the U.S. For the avoidance of doubt the fund may not be offered to any U.S. persons and this material does not constitute an offer or solicitation of any fund in the U.S. Aegon Asset Management is the global investment management brand of Aegon Ltd.
Nothing within this material is intended as a recommendation, research or advice and no representation as to suitability for any particular investor is being made: investors should consider their own need for advice prior to making an investment decision. Neither Aegon Asset Management UK plc nor Aegon Asset Management US are undertaking to provide impartial investment advice or give advice in a fiduciary capacity for the purposes of any applicable federal or state law or regulation. By receiving this material, you agree with the intended purpose described above.
Opinions and/or example trades/securities represent our understanding of markets both current and historical and are used to promote Aegon Asset Management’s investment management capabilities: they are not investment recommendations, research or advice. Sources used are deemed reliable by Aegon Asset Management at the time of writing. While care has been taken in the preparation of these materials, its accuracy is not guaranteed, and it does not form the basis of any subsequent contract. The document is subject to change without notice. All data is sourced to Aegon Asset Management UK plc unless otherwise stated.
Any ‘forward-looking statements” are based on Aegon Asset Management UK’s beliefs, as well as on a number of assumptions concerning future events, based on information currently available to Aegon Asset Management UK. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Such statements are not guarantees of future performance which may differ materially from statements within.
This is a marketing communication. Please refer to the Prospectus of the UCITS and to the KIID before making any final investment decisions. The relevant documents can be found at www.aegonam.com. The principal risk of this product is the loss of capital. The fund is a medium to long-term investment and your capital is at risk. Any investment objective, performance benchmark and yield information should not be considered as an assurance or guarantee of the performance of the fund or any part of it. Investments in high yield bonds may be subject to greater volatility than fixed income alternatives, including loss of principal and interest as a result of the higher likelihood of default. Value of these securities may also decline when interest rates increase.
Neither Aegon Asset Management Investment Company (Ireland) plc (AAMICI) nor the Fund(s) have been registered under the United States Investment Company Act of 1940, as amended, nor the United States Securities Act of 1933, as amended (1933 Act). No shares may be offered or sold, directly or indirectly in the United States or to any U.S. person unless the securities are registered under the 1933 Act, or an exemption from the registration requirements of the 1933 Act is available. A “U.S. person” is defined as (a) any individual who is a citizen or resident of the United States for federal income tax purposes; (b) a corporation, partnership or other entity created or organized under the laws of or existing in the United States; (c) an estate or trust the income of which is subject to United States federal income tax regardless of whether such income is effectively connected with a United States trade or business. In the United States, this material may be distributed only to a person who is a “distributor,” or who is not a “U.S. person,” as defined by Regulation S under the U.S. Securities Act of 1933 (as amended).
Aegon Asset Management Investment Company (Ireland) plc (AAMICI) is an umbrella type open-ended investment company which is authorized and regulated by the Central Bank of Ireland with limited liability sub-funds and variable capital. Please note that not all sub-funds and share classes may be available in each jurisdiction. This document is marketing and does not constitute an offer or solicitation to buy any fund(s) mentioned. No promotion or offer is intended other than where the fund(s) is/are authorized for distribution or where the fund(s) is/are otherwise exempt from authorization for distribution.
The following Aegon affiliates are collectively referred to herein as Aegon Asset Management: Aegon USA Investment Management, LLC (Aegon AM US), Aegon USA Realty Advisors, LLC (Aegon RA), Aegon Asset Management UK plc (Aegon AM UK), and Aegon Investment Management B.V. (Aegon AM NL). Each of these Aegon Asset Management entities is a wholly owned subsidiary of Aegon Ltd.
Aegon AM UK is the investment manager for AAMICI and also the marketer for AAMICI in the UK and otherwise outside of the EEA. Aegon AM US is the appointed solicitor and acts on behalf of Aegon Asset Management UK plc with respect to the promotion of Aegon Asset Management’s strategies to US based Institutional Investors. Aegon AM US is a US based registered investment adviser with the SEC. Aegon Asset Management UK plc is a registered investment adviser with the SEC. Aegon Asset Management UK plc is authorised and regulated by the Financial Conduct Authority. Aegon Asset Management ©2024, all rights reserved.
