aegon asset management fixed income & real estate insights€¦ · 03.01.2017 · aegon asset...

Aegon Asset Management Fixed Income & Real Estate Insights

Aegon USA Investment Management, LLC (AUIM) is a U.S. based SEC registered investment adviser and a member company of Aegon Asset Management, the global investment management brand of the Aegon Group. Aegon USA Realty Advisors, LLC (“AURA”), an affiliate of AUIM, is not an SEC registered investment adviser and is not regulated by any federal agency. AURA invests in real estate products for the Aegon companies and for institutional clients. The information presented at this conference is not intended to be a solicitation for AUIM or AURA’s investment products or advisory services. For institutional use only.

Francis Rybinski

Director of Macro Strategy

Aegon USA Investment Management, LLC

Don Guarino

Vice President of Valuation & Research

Aegon USA Realty Advisors, LLC

— 2For institutional use only

Macroeconomic outlook

Frank RybinskiDirector of Macro Strategy



— 3For institutional use only

Gross domestic product (GDP)


• Average annual increase +50 basis points over the next two years

• End-of-cycle slowdown pushed out towards end of the decade

• Net positive skew to growth

AUIM economic forecasts

2014 2015 1Q16 2Q16 3Q16 4Q16 2016 2017 2018 2019 2020 2021

GDP (Real %, YoY) 2.40 2.60 1.60 1.30 1.70 2.00 1.60 2.25 2.50 1.80 1.00 2.50

GDP (Real, QoQ, AR %) - - 0.80 1.40 3.50 2.10 - - - - - -

As of: 1/3/17

For institutional use onlyFor institutional use only — 4

Trump’s potential impact on long-term growth


1.0

1.5

2.0

2.5

3.0

3.5

4.0

19

77

19

79

19

81

19

83

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

20

23

20

25

Can “Trumponomics” boost long-term productivity?If so, real trend growth can accelerate, but upside is limited.

Scenario 1 - GDPp (1.7% Trend Productivity)

Scenario 2 - GDPp (2.0% Trend Productivity)

CBO's Official Potential Real GDP Growth (Implies 1.4% Trend Productivity)

Source: Haver Analytics, CBO, AUIM

GD

P (

%)


If not addressed, structural deficit is projected to worsen


-10

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

-1,600

-1,450

-1,300

-1,150

-1,000

-850

-700

-550

-400

-250

-100

50

200

350

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

20

26

Per

cen

t o

f G

DP

USD

Bill

ion

s

CBO actual and projected budget deficit or surplus

CBO Federal Deficit or Surplus ($bil) As % of GDP (RHS)

Source: Congressional Budget Office, AUIM Investment Strategy Team, Haver Analytics

Projected


Interest rate outlook



2014 2015 1Q16 2Q16 3Q16 4Q16 2016 2017 2018 2019 2020 2021

Federal Funds Rate (%) 0.25 0.50 0.50 0.50 0.50 0.75 0.75 1.25 2.00 2.50 2.00 2.75

10-year U.S. Treasury (%) 2.17 2.27 1.77 1.47 1.60 2.45 2.45 2.85 3.50 3.25 2.75 3.75

As of: 1/3/17

2.85

3.50

3.25

2.75

3.75

2.64

2.842.99

3.083.17

2.00

2.20

2.40

2.60

2.80

3.00

3.20

3.40

3.60

3.80

4.00

2017 2018 2019 2020 2021

10

Yr

Yiel

d (

%)

AUIM projected 10-year U.S. Treasury yield vs. forwards

AUIM Projected Forwards

Faster growth + small output gaps = higher rates

For institutional use onlyFor institutional use only — 7Macroeconomic outlook


2014 2015 1Q16 2Q16 3Q16 4Q16 2016 2017 2018 2019 2020 2021

Unemployment (%) 5.6 5.0 4.9 4.9 4.9 4.8 4.8 4.6 4.4 4.8 5.2 5.2

As of: 1/3/17

• Near cyclical lows

• Expect modest headline rate improvements

• Likely further absorb labor slack

• Anticipate a bottom around 2018

Unemployment outlook


Unemployment vs. the natural rate

0%

2%

4%

6%

8%

10%

12%

Un

emp

loym

ent

Rat

e %

Long-term natural rate of unemployment vs. actual unemployment

Recession Shading Civilian Unemployment Rate: 16 yr + (SA, %) Natural Rate of Long-Term Unemployment [CBO] (%)

Source: Haver Analytics, CBO As of Q4.2016


Persistent labor underutilization


3

5

7

9

11

13

15

17

Jan

-94

Au

g-9

4

Mar

-95

Oct

-95

May

-96

De

c-9

6

Jul-

97

Feb

-98

Sep

-98

Ap

r-9

9

No

v-9

9

Jun

-00

Jan

-01

Au

g-0

1

Mar

-02

Oct

-02

May

-03

De

c-0

3

Jul-

04

Feb

-05

Sep

-05

Ap

r-0

6

No

v-0

6

Jun

-07

Jan

-08

Au

g-0

8

Mar

-09

Oct

-09

May

-10

De

c-1

0

Jul-

11

Feb

-12

Sep

-12

Ap

r-1

3

No

v-1

3

Jun

-14

Jan

-15

Au

g-1

5

Mar

-16

Oct

-16

Un

emp

loym

ent

per

cen

tage

Difference: u6-u3 U3 U6

Quantifying the ‘real' labor slack: U-3 vs. U-6 (in percentage points)

Source: BLS, Haver Analytics, AUIM Investment Strategy As of November 1, 2016

u3 = The headline rate of unemploymentu6 = u3 + marginally attached + part-time for economic reasons (i.e., want full-time employment but had to settle for part-time)



2014 2015 1Q16 2Q16 3Q16 4Q16 2016 2017 2018 2019 2020 2021

Core Personal Consumption Expenditures (PCE)

1.4 1.3 1.6 1.6 1.7 1.8 1.7 2.0 2.2 2.0 1.7 1.7

As of: 1/3/17

• Shift to reflationary policy puts a net tailwind behind inflation forecasts

• Phillips curve has flattened in recent years

• Expect core inflation to gradually rise, peaking a touch ahead of 2% in 2018

• Continued strong dollar would offset some inflationary pressures

Inflation outlook


Will the Phillips curve finally start to steepen?


Q4.08

Q2.09

Q4.11

Q4.14

Q3.16

0%

1%

2%

3%

4%

5%

6%

-3% -2% -1% 0% 1% 2% 3%

Co

mp

osi

te W

age

Gro

wth

Yo

Y*

Unemployment Gap**

Wage Phillips Curve

1990 recession

2001 recession

2008 recession

Q3-2016Source: BLS, Haver Analytics*Composite Wage includes Compensation per hour, Employment Cost Index, Median usual Weekly Earnings and Average Hourly Earnings**Unemployment Gap is difference between the spread of U-6 & U-3 unemployment rate and NAIRU


• Potential speed governor for economic growth

• Continued strength would weigh on trade deficit

• Short term: factors in place for a stable / modestly stronger dollar

• Medium / long term: lower likelihood of pronounced strength given fundamentals and valuation

U.S. dollar valuations already extended

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

PPP (PPI) Fair Value EURUSD Spot 20% Band

EUR / USD

Source: AUIM Investment Strategy, Bloomberg

60

70

80

90

100

110

120

130

140

150

160

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

PPP (PPI) Fair Value USDJPY Spot 20% Band


USD / JPY


(1,000)

(500)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Yen

(b

illio

n)

Japan Current Account Bal (Bil Yen)

-30

-20

-10

0

10

20

30

40

50

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Euro

(b

illio

ns)

Eurozone Current Account Bal (Bil Euro)

Eurozone current account balance Japan current account balance


U.S. dollar - shift in current accounts creates headwinds



-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Dec

-00

Jun

-01

Dec

-01

Jun

-02

Dec

-02

Jun

-03

Dec

-03

Jun

-04

Dec

-04

Jun

-05

Dec

-05

Jun

-06

Dec

-06

Jun

-07

Dec

-07

Jun

-08

Dec

-08

Jun

-09

Dec

-09

Jun

-10

Dec

-10

Jun

-11

Dec

-11

Jun

-12

Dec

-12

Jun

-13

Dec

-13

Jun

-14

Dec

-14

Jun

-15

Dec

-15

Jun

-16

% o

f G

DP

Average EM Current Account Balance as % of GDP 4 Qtr MA

Average emerging market current account balance as a % of GDP

U.S. dollar - shift in current accounts creates headwinds


Summary


• GDP - Average annual increase +50 basis points over the next two years

• Unemployment – Modest improvements in headline rate

• Inflation – Core inflation to gradually rise, peaking a little above 2% in 2018

• USD – Strength in the short term, less likely in medium/ long term

For institutional use only — 16For institutional use only

Real estate outlook

Don GuarinoVice President of Valuation & Research


Real estate outlook


Leaders*

Apartment fundamentals

Real estate outlook

Property type outlook

0%

4%

8%

12%

16%

0

100

200

300

'94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Vac

ancy

rat

e

Tho

usa

nd

un

its

Apartment marketCompletion Net absorption Vacancy rate

Vacancy Rent ($/Unit)15Q3 16Q3 Change 15Q3 16Q3 Change

Sacramento 4.1% 3.7% -0.4% $1,086 $1,192 9.8%

Seattle 5.3% 4.7% -0.6% $1,405 $1,510 7.5%

Salt Lake City

6.0% 4.8% -1.2% $962 $1,023 6.4%

Phoenix 6.1% 5.9% -0.2% $862 $916 6.3%

Tampa 5.4% 5.1% -0.3% $988 $1,043 5.5%

Laggards**

Vacancy Rent ($/Unit)15Q3 16Q3 Change 15Q3 16Q3 Change

San Francisco 3.7% 4.3% 0.7% $3,075 $3,020 -1.8%

OklahomaCity

8.9% 10.4% 1.5% $704 $699 -0.7%

Houston 7.1% 8.7% 1.6% $1,022 $1,013 -0.9%

CoStar Portfolio Strategy, 2016 Q3. MSA - Top 54 Metropolitan Statistical Area in the United States.*Leaders have a favorable vacancy trend and rent growth of 3% or higher.**Laggards have an unfavorable vacancy trend and rent growth of 0% or lower.Source: Annual Data, CoStar Portfolio Strategy, Q3 2016

AURA’s view is derived by the Applied Research Group and is based on both forward and backward looking measures.


Apartment class A

Real estate outlook

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

3.5

0-3

.74

%

3.7

5-3

.99

%

4.0

0-4

.24

%

4.2

5-4

.49

%

4.5

0-4

.74

%

4.7

5-4

.99

%

5.0

0-5

.24

%

5.2

5-5

.49

%

5.5

0-5

.74

%

5.7

5-5

.99

%

6.0

0-6

.24

%

6.2

5-6

.49

%

6.5

0-6

.74

%

6.7

5-6

.99

%

7.0

0-7

.24

%

7.2

5-7

.49

%

7.5

0-7

.74

%

7.7

5-7

.99

%

8.0

0-8

.24

%

8.2

5-8

.49

%

8.5

0-8

.74

%

8.7

5-8

.99

%

Ren

t gr

ow

th

Vacancy cohorts

Average annual rent growth(since 2000)

Current vacancy: 4.50%

Long-run average:5.54% 2000 Q3

2001 Q1

2008 Q4

2009 Q3

-4%

-2%

0%

2%

4%

6%

8%

10%

3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%

Ren

t gr

ow

th

Vacancy

Rent growth(since 2000)

Source: MPF Research as of Q3 2016


Apartment class B

Real estate outlook

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Ren

t gr

ow

th

Vacancy cohorts


Current vacancy: 3.60%

Long-run average: 5.45%

2000 Q4

2002 Q3

2009 Q4

2011 Q4

-6%

-4%

-2%

0%

2%

4%

6%

8%

3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00%

Ren

t gr

ow

thVacancy




Apartment class C

Real estate outlook

-8%

-6%

-4%

-2%

0%

2%

4%

6%

3.5

0-3

.74

%

3.7

5-3

.99

%

4.0

0-4

.24

%

4.2

5-4

.49

%

4.5

0-4

.74

%

4.7

5-4

.99

%

5.0

0-5

.24

%

5.2

5-5

.49

%

5.5

0-5

.74

%

5.7

5-5

.99

%

6.0

0-6

.24

%

6.2

5-6

.49

%

6.5

0-6

.74

%

6.7

5-6

.99

%

7.0

0-7

.24

%

7.2

5-7

.49

%

7.5

0-7

.74

%

7.7

5-7

.99

%

8.0

0-8

.24

%

8.2

5-8

.49

%

8.5

0-8

.74

%

8.7

5-8

.99

%

9.0

0-9

.24

%

9.2

5-9

.49

%

9.5

0-9

.74

%

Ren

t gr

ow

th

Vacancy cohorts


Current vacancy:3.90%

Long-run average: 6.63% 2000 Q1

2001 Q1

2009 Q4

2011 Q1

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 11.00%Ren

t gr

ow

thVacancy




Office fundamentals

Real estate outlook

0%

4%

8%

12%

16%

-75

0

75

150

225

'88 '92 '96 '00 '04 '08 '12 '16

Vac

ancy

rat

e

Mill

ion

sq

uar

e fe

et

Office marketCompletion Net absorption Vacancy rate

Leaders*

Laggards**

• No metropolitan statistical areas (MSA) met the criteria

Vacancy Rent ($/SF)15Q3 16Q3 Change 15Q3 16Q3 Change

East Bay 8.8% 8.0% -0.8% $25.86 $28.87 11.6%

Nashville 5.4% 4.1% -1.3% $21.09 $22.77 8.0%

Boston 8.8% 8.4% -0.4% $27.84 $29.79 7.0%

Orange County 9.5% 9.0% -0.5% $24.68 $26.24 6.3%

Atlanta 12.7% 12.1% -0.6% $19.36 $20.49 5.8%

Source: Annual Data, CoStar Portfolio Strategy, Q3 2016

CoStar Portfolio Strategy, 2016 Q3. MSA - Top 54 Metropolitan Statistical Area in the United States.*Leaders have a favorable vacancy trend and rent growth of 3% or higher.**Laggards have an unfavorable vacancy trend and rent growth of 0% or lower.




Industrial fundamentals

Real estate outlook

0%

4%

8%

12%

16%

-100

0

100

200

300

'83 '86 '89 '92 '95 '98 '01 '04 '07 '10 '13 '16

Vac

ancy

rat

e

Mill

ion

sq

uar

e fe

et

Industrial marketCompletion Net absorption Vacancy rate

Laggards**

Leaders*

Vacancy Rent ($/SF)15Q3 16Q

3Change 15Q3 16Q3 Change

San Jose 4.8% 2.4% -2.4% $10.45 $12.18 16.6%

San Francisco 3.7% 2.4% -1.3% $14.89 $17.24 15.8%

East Bay 4.7% 4.1% -0.6% $8.34 $9.48 13.7%

Nashville 5.5% 3.5% -2.1% $4.88 $5.49 12.5%

San Antonio 5.7% 5.0% -0.6% $5.71 $6.37 11.6%

Vacancy Rent($/SF)15Q3 16Q3 Change 15Q3 16Q3 Change

Hartford 6.5% 7.2% 0.7% $5.04 4.98% -1.2%






Retail fundamentals

Real estate outlook

0%

4%

8%

12%

16%

0

50

100

150

200

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16

Vac

ancy

rat

e

Mill

ion

sq

uar

e fe

et

Retail market

Completion Net absorption Vacancy rate

Laggards**

Leaders*


Austin 4.0% 3.7% -0.3% $19 $20.69 10.0%

Boston 3.3% 3.0% -0.3% $19 $21.35 9.7%

Nashville 5.4% 4.0% -1.3% $16 $16.82 8.4%

Las Vegas 9.9% 8.9% -1.0% $16 $16.73 7.2%

LosAngeles

4.6% 4.1% -0.5% $2 $29.41 6.6%


Honolulu 1.9% 2.9% 1.0% $41 $39 -4.7%

No. New Jersey

5.4% 5.8% 0.4% $21 $21 -2.2%







Aegon USA Investment Management, LLC (AUIM) is a U.S. based SEC registered investment adviser and is also registered as a Commodity Trading Advisor (CTA) with the Commodity Futures Trading Commission (CFTC) and is a member of the National Futures Association (NFA). AUIM is a member company of Aegon Asset Management, the global investment management division of the Aegon Group.

AUIM and Aegon Investment Management B.V. (AIM) share a global investment research platform. Certain personnel employed by AIM provide AUIM with investment research and recommendations regarding foreign corporate and sovereign debt issuers. These AIM personnel, with respect to their global research activities, are considered AUIM associated persons and subject to certain of AUIM’s policies, monitoring, and supervision

Aegon USA Investment Management, LLC (“AUIM”), a wholly owned indirect subsidiary of Aegon N.V., is a U.S.-based investment adviser registered with the Securities and Exchange Commission (“SEC”) and part of Aegon Asset Management, the global investment management division of Aegon Group. AUIM is a limited liability company formed on June 1, 2001 and began managing assets on December 1, 2001. The firm definition was revised February 1, 2016 to better reflect AUIM's relationship in the broader Aegon Asset Management organization. The firm maintains a complete list and description of composites, which is available upon request.

This material is to be used for institutional investors and not for any other purpose. The enclosed information has been developed internally and/or obtained from sources believed to be reliable. This material contains current opinions of the manager and such opinions are subject to change without notice. AUIM is under no obligation, expressed or implied, to update the material contained herein. This material contains general information only on investment matters; it should not be considered a comprehensive statement on any matter and should not be relied upon as such. If there is any conflict between the enclosed information and AUIM's Form ADV, the Form ADV controls. The information contained does not take into account any investor's investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to you. The value of any investment may fluctuate. Past performance is not indicative of future results.

The information presented is for illustrative purposes only. Individual accounts may vary based on restrictions, substitutions, cash flows, and other factors. The mention of specific securities illustrates application of AUIM’s investment approach only and is not to be considered a recommendation by the firm. Specific securities identified and described do not represent all securities purchased or sold for the portfolio, and it should not be assumed that investment in these securities were or will be profitable, or that investment recommendations or decisions that AUIM makes in the future will be profitable. Portfolio holdings are subject to change daily. There can be no assurance that securities purchased remain in the portfolio or that securities sold have not been repurchased.

This document contains "forward-looking statements" which are based on AUIM's beliefs, as well as on a number of assumptions concerning future events, based on information currently available to AUIM. These statements involve certain risks, uncertainties and assumptions which are difficult to predict. Consequently, such statements cannot be guarantees of future performance, and actual outcomes and returns may differ materially from statements set forth herein.

Aegon USA Investment Management, LLC claims compliance with the Global Investment Performance Standards (GIPS®). Please contact AUIM at [email protected] or 877-234-6862 to obtain a compliant presentation and/or a list of composite descriptions.

Recipient shall not distribute, publish, sell, license or otherwise create derivative works using any of the content of this report without the prior written consent of Aegon USA Investment Management, LLC, 4333 Edgewood Rd NE, Cedar Rapids, IA 52499. Copyright © 2017 Aegon USA Investment Management, LLC


This material is to be used for institutional investors and not for any other purpose. The information included in this document should not be construed as investment advice regarding any security or other investment, a recommendation for the purchase or sale of any security or other investment, or an offer to sell or solicitation of an offer to purchase any security or other investment. The enclosed information has been developed internally and/or obtained from sources believed to be reliable; however, Aegon USA Realty Advisors, LLC does not guarantee the accuracy, adequacy, or completeness of such information, and has no obligation to correct, modify or supplement the information. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied on as such. The information it contains does not take into account any investor's investment objectives, particular needs or financial situation. The value of any investment may fluctuate. Results achieved by AURA or its affiliates in the past do not guarantee that a potential client would achieve similar results in the future. If returns are discussed in the preceding information, the returns do not reflect the deduction of fees or expenses, including without limitation management fees that AURA would charge for its services.

Aegon USA Realty Advisors, LLC (AURA), is not an SEC-registered investment adviser and is not regulated by any federal agency. AURA invests in real estate products for the Aegon companies and for institutional clients.

AURA is a member companies of Aegon Asset Management, the global investment management division of the Aegon Group.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written consent of Aegon USA Realty Advisors, LLC., 4333 Edgewood Rd NE, Cedar Rapids, IA 52499.

Copyright © 2017 Aegon USA Realty Advisors, LLC

Disclosures

Appendix

AdTrax Code: 1677404.1, Marketing Code: IIPO6117, Exp Date: 1/31/17

mailto:[email protected]

aegon asset management fixed income & real estate insights€¦ · 03.01.2017 · aegon asset...

Documents