Legg Mason Brandywine Global Income Optimiser A aims to earn a return before fees and taxes of 2% p.a. in excess of the Citigroup World Government Bond Index hedged into Australian dollars (‘Benchmark’) over complete market cycles of three to five years. The Trust generally aims to invest countries that are included in the Benchmark, however up to 40% of the Trust can be invested in countries outside the Benchmark. The Fund’s investment objective is to seek to generate a high and consistent level of income in all market conditions over a full market cycle with a secondary objective of capital preservation.
The Fund gained 1.28% (net) over the month of June. Emerging market local currency sovereign bonds and their respective currencies was the largest contributor over the quarter, specifically to Colombia, Brazil and Mexico as each of these countries are showing signs of peak inflation. U.S. corporate high-yield bond exposure also generated a positive return as credit spreads narrowed, with industrials and financials in particular outperforming. U.S. corporate investment-grade exposure was flat for the quarter. U.S. prime MBS exposure also generated a positive return given the resiliency in the U.S. residential housing market.
The Fund’s primary detractor was U.S. Treasury duration, as yields moved higher later in the quarter given comments from Powell on the likelihood of additional rate hikes. Short Japanese duration exposure also detracted, as the Bank of Japan maintained its accommodative stance despite rising inflation. Finally, the Japanese yen detracted given the widening monetary policy divergence between Japan and the U.S.
From a positioning perspective, duration stayed relatively consistent over the quarter. However, the Fund rolled down the curve with a portion of its U.S. Treasury duration exposure. The position is now split between the 10-year part of the curve and the 30-year part of the curve. U.S. dollar exposure was trimmed, as we believe the dollar will weaken given that U.S. relative monetary policy tightening is set to peak. The Fund slightly increased its emerging market sovereign local currency exposure, including to Brazil, Colombia and Mexico, as many emerging markets are experiencing disinflation. A position to the Japanese yen was also initiated, as it reached new year-to-date lows. The Japanese economy also continued to perform well. The Fund also took profits on its prime MBS exposure late in the quarter. Within U.S. corporate credit, the Fund took select exposure from the intermediate part of the curve in favour of shorter-duration credits. Given the inversion of the U.S. treasury yield curve, shorter-duration credits and their yields offered a favourable risk-return profile. Within U.S investment-grade credit, the Fund trimmed technology names in favour of financials.
What is Legg Mason Brandywine Glb Inc Optr Legg Mason Brandywine Glb Inc Optr is an Managed Funds investment product that is benchmarked against Global Aggregate Hdg Index and sits inside the Fixed Income - Multi-Strat Income Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Legg Mason Brandywine Glb Inc Optr has Assets Under Management of 104.20 M with a management fee of 0.65%, a performance fee of 0.00% and a buy/sell spread fee of 0.13%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Legg Mason Brandywine Glb Inc Optr has returned 5.09% in the last month. The previous three years have returned -2.37% annualised and 6.33% each year since inception, which is when the Legg Mason Brandywine Glb Inc Optr first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Legg Mason Brandywine Glb Inc Optr first started, the Sharpe ratio is 0.22 with an annualised volatility of 6.33%. The maximum drawdown of the investment product in the last 12 months is -7.08% and -17.34% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Legg Mason Brandywine Glb Inc Optr has a 12-month excess return when compared to the Fixed Income - Multi-Strat Income Index of 1.28% and 0.53% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Legg Mason Brandywine Glb Inc Optr has produced Alpha over the Fixed Income - Multi-Strat Income Index of 0% in the last 12 months and 0.04% since inception.
What are similar investment products?
For a full list of investment products in the Fixed Income - Multi-Strat Income Index category, you can click here for the Peer Investment Report.
What level of diversification will Legg Mason Brandywine Glb Inc Optr provide?
Legg Mason Brandywine Glb Inc Optr has a correlation coefficient of 0.77 and a beta of 2.02 when compared to the Fixed Income - Multi-Strat Income Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Legg Mason Brandywine Glb Inc Optr and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Legg Mason Brandywine Glb Inc Optr with the Global Aggregate Hdg Index?
For a full quantitative report on Legg Mason Brandywine Glb Inc Optr compared to the Global Aggregate Hdg Index, you can click here.
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Comments from SMSF Mates
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Performance Commentary - March 31, 2023 The Fund gained 1.85% (net) over the month of March. Developed market bond duration, specifically U.S. Treasuries and German bunds, were positive for performance. The Fund’s emerging market government bonds were beneficial, driven by allocations to Brazil, Colombia and Mexico. From a currency positioning perspective, exposures to the Brazilian real, Columbian peso and Mexican peso were additive for returns, as they all strengthened versus the U.S. dollar. Finally, the Fund’s allocation to U.S. corporate investment-grade bonds was rewarded. On the downside, a short duration position to Japan detracted from returns, as the Bank of Japan maintained its accommodative monetary policy and yields declined.
From a positioning perspective, the investment team’s view, safe haven duration and remaining liquid are appropriate in the current environment. The team believes increasing risks of recession justify some ballast in the Fund, including approximately 3.4 years of U.S. Treasury duration and 0.4 year of German bund duration. The Fund remains invested in liquid parts of the bond market should further volatility occur. The team also feels that U.S. corporate bonds provide a yield cushion for the portfolio. Given higher yields, there is a large amount of cushion for further spread widening to occur and still achieve a positive return. The team continues to favour lower-quality investment-grade securities as well as higher quality high-yield issuers. The Fund owns credits that the team feels comfortable holding for a longer time period, even with spread volatility. Finally, the Fund maintains select foreign currency positions, including a modest allocation to emerging market currencies. In the team’s view, the U.S. dollar will likely weaken in 2023 given U.S. relative monetary policy tightening set to peak and decelerating U.S. growth.
Performance Commentary - December 31, 2022 The Fund fell 0.32% (net of fees) over the month of December. U.S. high-yield corporate credit was the largest contributor over the quarter. All sectors performed well broadly as spreads narrowed; however, metals and mining, as well as leisure names, outperformed. U.S. investment-grade corporates were also accretive, with financials in particular performing well. Currency exposures also contributed over the quarter, specifically the New Zealand dollar, the Japanese yen, the Thai baht and the Euro. After reaching a 21-year high in late September, the U.S. dollar subsequently gave back around half of its gain in the fourth quarter. The reversal was partially driven by concerns the economy could fall into a recession. Peruvian local-currency government bond exposure was also accretive. Developed market duration, specifically U.S. Treasuries and German bunds, was the largest detractor. Developed market bond duration rallied in November on the back of the expectation that the Fed had become less hawkish. However, rates rose in December and reversed any gains as central banks reiterated their commitment to tightening monetary policy to combat inflation.
From a positioning perspective, the Fund added select foreign currency positions, using the U.S. dollar as the funding currency. Most notably the Japanese yen, euro, Australian dollar, Colombian peso and Thai baht were added. The Fund also initiated and subsequently sold a tactical position to the New Zealand dollar over the quarter, which was accretive. We believe the dollar will likely weaken in 2023 given that U.S. relative monetary policy tightening is set to peak and due to decelerating U.S. growth outperformance. The Fund remains invested in developed market bond exposure, primarily via U.S. Treasuries and German bunds. Increasing recession risks justify some safe-haven duration on the long end of the curve (30 years), which we believe is increasingly anchored. The Fund tactically took profits in its corporate bond exposure after spreads narrowed. The team also increased exposure to select emerging market government bonds, including Brazil and Colombia. Finally, the Fund added to its mortgage-backed securities exposure, primarily via U.S. agency pass-through securities.
Performance Commentary - September 30, 2022 The Fund fell 4.76% (net of fees) over the month of September. The short-dated US Treasuries within the Fund shielded the Fund during a volatile quarter. While on the other side, developed market duration detracted, specifically U.S. Treasuries, as rates moved higher on the back of hawkish comments by developed market central banks and further rate hikes U.S. high-yield and investment-grade detracted; credit spreads widened as risk aversion remained elevated and rates moved sharply higher.
From a positioning perspective, we see increasing risks of recession which justify some ballast within the Fund, including approximately 4.5 yrs. of long-dated (30-year) US Treasury duration. We are tactically looking for opportunities to add duration. The strategy also holds short-dated U.S. Treasury floaters and remains invested in liquid parts of the bond market should further volatility occur. We are selective in our credits, and our corporate credit within the Fund remains allocated to those companies with strong fundamentals and pricing power. We have added some credits we feel comfortable holding for a longer time period, even with spread volatility. Index level spreads are now somewhat compelling, though we may not have seen the peak in credit spreads. With that said, given higher yields, there is a large amount of cushion for further spread widening to occur and still achieve a positive return. We continue to favour lower-quality investment grade securities as well as higher-quality high-yield issuers.
Performance Commentary - June 30, 2022 The Fund fell 2.75% (net of fees) over the month of June. The high yield allocation was the largest detractor for the quarter. Price action was initially driven by front-end rates moving higher; however, spread widening became the larger catalyst of returns toward the end of the quarter.
As of quarter end, spreads had returned to levels last seen in the summer of 2020. The selloff in high yield was broad in nature, although the strategy was particularly hurt by bonds within the lowest quality segments (i.e., single B and below). Developed market duration returned mixed results over the quarter. While yields were generally higher during the quarter, the market saw a sizable reversal in rate hike expectations in mid-June after the Fed raised its policy rate by 75 basis points.
The small relief rally provided some offset to the negative return contributions from the first two and a half months. The strategy’s exposure to short-dated U.S. Treasury floating rate notes provided protection during heightened volatility. Overall, there were limited opportunities to achieve positive returns during the quarter, with all segments including investment-grade corporates and securitized assets achieving negative returns.
Performance Commentary - December 31, 2021 The Fund returned 0.69% (net of fees) for the month of December 2021. The key contributor to performance for the month was the exposure to corporate high yield. From a lower quality credit perspective, the overall U.S. high-yield market rallied in December, boosting its strong 2021 return. Losses booked from the sector in the previous two months were more than recouped as better than expected news flow on the Omicron variant was digested by markets.
Performance Commentary - September 30, 2021 The Fund fell –0.70% during September, and was down –0.07% over the quarter. Within the high-yield credit market, cyclicals, especially energy-related securities, contributed to the Fund’s performance, as both oil and natural gas prices increased over the quarter. Exposure to the U.S. mortgage-backed market was also additive for returns as it continues to be supported by higher home prices and a muted foreclosure environment. On the downside, tactical exposure to high-quality government bonds across the U.S. and Europe was a significant detractor from results late in the third quarter. Finally, the Fund’s exposure to Mexican sovereign bonds was a headwind for performance, as they were negatively impacted by central bank rate hikes as a result of rising inflation, coupled with Fed’s perceived hawkishness.
From a credit perspective, the Fund continues to favor issuers within sectors that maintain pricing power. The Fund also has minimal exposure to select emerging market hard currencies. The Fund increased its duration throughout the quarter and ended the period at 5.4 years. This was primarily executed through investments in high-quality government bonds in the U.S. and France, as well as higheryielding European periphery securities. Policy uncertainty has heightened volatility across the bond market, and increasing duration felt like the prudent move. The Fund has been positioned for higher rates going forward, but increased macro risks have called into question the reflationary narrative in the near term. Finally, the Fund continues to favor lower-quality investment-grade securities and relatively higher-quality highyield issuers. The Fund’s corporate credit portfolio remains allocated to cyclical companies, and the manager remains selective in its credit exposure, as valuations are not overly compelling
Performance Commentary - August 31, 2021 The Fund posted a positive absolute return in August, up 0.12%. The Fund’s U.S. high-yield allocation was the largest contributor to performance as the sector benefited from strong corporate earnings and spread tightening. European high-yield positioning was also additive for returns. Elsewhere, an exposure to structured credit, primarily U.S. residential mortgage-backed securities, continued to produce results. On the downside, the Fund’s government sovereign exposure was the largest detractor in August, driven mainly by South Korea and France During the month, the Fund continued to modestly increase its duration. Monetary policy uncertainty has heightened volatility across the bond market, and the manager felt increasing duration was a prudent strategy. The Fund has been positioned for higher rates going forward, but increased macro risks have called into question the reflationary narrative in the near term. The Fund continues to favor lower-quality investment-grade securities as well as higherquality high yield issuers. The Fund’s corporate credit allocation favors pro-cyclical companies and the manager is highly selective in its credit positioning, as valuations are not overly compelling. The manager also continues to focus on companies that have pricing power I the current environment
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