Looking to solve the low yield conundrum: Legg Mason Brandywine Global Income Optimiser Fund marks three-year track record in Australia


Andy Sowerby

Australia has entered a record low interest rate environment and may remain so for a prolonged period. Thus, investors, and their advisers, face a problem; how to generate sufficient income in a low interest rate world without taking on undue risk?

Andy Sowerby, Managing Director, Legg Mason Australia says: “In today’s challenging, low interest rate environment, searching for regular income sources requires both flexibility and creativity.

“In an uncertain world, investors must continue to diversify.  The Legg Mason Brandywine Global Income Optimiser Fund, launched in May 2017 in Australia, is designed to give investors access to the world’s most attractive fixed income opportunities with a strong focus on capital protection. This strategy is proving its worth and is ranked in the top decile of its peer group^ since its launch,” he notes.

“For over three years, this Fund has been providing Australian investors a flexible approach to sourcing global income and managing risk. The Fund combines Brandywine Global’s macro-economic analysis and deep sector expertise to build a portfolio that dynamically manages downside risk, while capturing attractive risk-adjusted return opportunities – all while preserving the diversification characteristics of a traditional global fixed income portfolio,” says Sowerby.

The Fund’s investable universe includes a broad mix of global securities including (but not limited to): sovereign, investment grade, high yield, structured credit and emerging market debt.

“This flexibility allows Income Optimiser to source income from areas where it is attractive and available while avoiding where it is not. As different asset class, sectors, industries, and parts of the capital structure come in, and out of favour, Income Optimiser seeks income from the market-sub-sectors with the most favourable income and risk/return profiles,” says Brian Kloss, Portfolio Manager, Brandywine Global.

“Notably, the Fund performance as at 31 May is 9.62 % (1yr), 6.98% (2yrs) and 5.10% (3yrs) and in addition is up 5.61% year-to-date (net of fees). It benefited from its significant exposure to U.S. investment-grade credit. Positions in banks and technology companies produced strong relative and absolute returns during the month. In general, U.S. financial institutions have been well capitalised since the Global Financial Crisis, and we remain constructive on the sector,” says Kloss

Kloss adds: “In late March, the Fund significantly increased its exposure to long-duration U.S. investment-grade corporate bonds. We continue to minimise exposure to lower-quality corporate credit, and believe the best opportunities are in the financial, consumer non-cyclical and technology sectors. While we continue to believe that value exists within emerging market debt, we are cautiously positioned in this space due to the increasingly uncertain macro backdrop. The Fund also continues to have exposure to U.S. housing securities, which offer solid fundamentals with minimal direct interest rate sensitivity.

“Looking forward, we continue to closely monitor for value opportunities across the corporate credit spectrum. For instance, while the G3 central banks have each provided a backstop for investment-grade corporate issuers, the high-yield credit has not received the same level of intervention to date. Therefore, high-yield corporate credit has not seen the same demand or spread compression as the investment-grade market and may offer compelling value as the economic backdrop improves. However, any additional exposure there will be taken carefully and with a keen eye on the progress of reopening across the relevant sectors,” adds Kloss.

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