Aegon Spain, which manages E850 million from its Madrid office, will add telecom bonds once the companies are upgraded to single-A or above. Enrique Marazuela, portfolio manager, says next year he will start to buy bonds that he has not touched this year, because their credit fundamentals are starting to improve and companies are working themselves out of the third-generation telephony licensing fiascos. He expects to see upgrades in the sector. He says he will buy the incumbents such as France Telecom, Deutsche Telekom and KPN once they are upgraded to single-A, because they represent good value. He expects upgrades to come gradually as these telecoms begin to de-lever. Aegon cannot own bonds rated lower than single-A.
Currently, Aegon is long banks and the financial sector. However, Marazuela plans to reduce that exposure because he sees banks' credit quality deteriorating across the board, especially in Germany. In some cases, Marazuela expects to be a forced seller. He declined to name specific banks he may sell. Aegon allocates 60% of its portfolio to government bonds and the balance to corporates.
In the beginning of next year, Aegon Spain will shorten up duration slightly, because Marazuela see long yields rising as government spending increases across Europe and an economic recovery kicks off in the U.S. He also anticipates another 25 basis points in interest rate cuts from the European Central Bank on top of the 50 seen earlier in the month. Further ECB cuts could affect the long-end of the yield curve. The firm uses a variety of benchmark indices.
