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Aegon back on track

Aegon chief investment officer Andrew Fleming looks to have made his mark on the company and is fast turning it around. This is certainly one investment house that intermediaries should be keeping an eye onThe old slogan of “Aegon for bonds” was highly appropriate, partly because it was the last company you wanted to manage your equity funds.

I remember well a visit there some five years ago, which clearly showed to me that the group had lost its way.

I made another trip to Edinburgh recently and am please to report that Aegon are well and truly back on track.

The new chief investment officer Andrew Fleming has been the instigator of this transformation. He didn’t look to make wholesale personnel changes but rightly recognised that a cultural change was required.

As a fund manager himself, he understands what motivates other fund managers and is acutely aware of the investment law of the jungle – you live and die by your performance.

Before Fleming arrived, Aegon was definitely dying.

When he started this daunting task, Fleming could take inspiration from what was happening to another of Edinburgh’s investment houses.

Standard Life Investments had a similar problem at one stage but has been reborn in recent years. It now has a successful process and culture, as well as funds with exceptional performance. Its capability grew from fixed interest to UK equities and now overseas equity performance has improved dramatically too.

I believe Fleming is putting down a similar marker. My advice to intermediaries is watch this space.

Two of its UK retail funds I believe warrant particular attention are the Aegon UK equity fund, managed by Stephen Adams, and the Aegon UK opportunities fund run by Audrey Ryan.

During my visit to the company, I could not help but be impressed by the reinvigorated personnel, who are clearly keen to get down to the business of building impressive track records.

The initial process starts with screening of the entire universe – for example, 750 stocks from the All Share plus AiM – based on quantitative factors such as margins relative to history and earnings momentum.

This narrows the universe into a more manageable list of stocks. These are then researched in depth with a qualitative overlay based on three criteria.

The first is valuation, using metrics such as P/E, yield, free-cash flow and price to book.

Second, the team look at fundamentals, meeting management to try to understand the business model. A company’s competitive advantage and how the macro picture will affect its sector are also taken into account.

Finally, the team examine technical data such as price momentum and director dealing indicate when a stock could be a possible buy.

Ultimately, it is the conviction behind a stock that will drive its position in the portfolio. The main change in the process has been to place this emphasis on conviction.

Aegon previously ran retail money along much the same lines as institutional money, which is just not a good enough strategy to compete in the retail space these days. The improvement has been significant. For example, since these changes were made 65 per cent of the outperformance of the ethical equity fund was down to stock selection, with the remaining 3 per cent driven by macro.

The UK equity and UK opportunities funds are clearly different. Mr Adams’ fund is about 80 per cent invested in the FTSE 100 although he is underweight in mega caps until he can see a real catalyst for change.

Audrey Ryan’s portfolio, on the other hand, is more of a multi-cap offering, with no sector or stock limits. This must be one to watch given Ryan’s performance on her ethical fund. If she man-ages the transition from ethical to mainstream mandate as well as Ted Scott has at F&C, then she will be doing very well, indeed.

In conclusion, I don’t believe the slogan “Aegon for bonds” tells the whole story today – although I should say that Messrs Roberts and Milburn are still doing an excellent job on fixed interest.

It might not be long before Aegon can be considered an investment house with really outstanding capability, across equities as well. It certainly has the potential – and some talented individuals.

All that remains is for it to continue to deliver on that potential.

I will certainly be keep-ing an eye on how things go over the next year or so, and I suggest you do the same.


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