Felicity Walsh

The Western Asset Australian Bond Fund has been added to Colonial First State FirstChoice platform, giving investors and financial advisers greater access to a highly regarded, core fixed income investment option.

Launched in 1998, the AUD $1.4 billion Fund boasts a long-term track record compared to that of its benchmark Bloomberg AusBond Composite 0+yr Index, of delivering risk adjusted returns for its investors through a diversified portfolio of domestic fixed income assets including government and semi-government bonds, supranational, corporate credit, and mortgage and other asset-backed securities. ^[1]

The Fund is strategically positioned to deliver the crucial defensive ballast characteristics sought by investors in the asset class. Western Asset Head of Investment Management, Anthony Kirkham, says “the Fund is currently positioned to generate positive active returns for investors as market expectations for the pace of central bank policy rate tightening moderate.”^[2]

Kirkham says: “We would argue that the market has gone too far in factoring in rate rise expectations. The yield to maturity in the portfolio has grown substantially, to the highest level we have seen for some years. We continue to believe that the increasingly aggressive monetary policy track being priced in for the major central banks creates a greater likelihood of either an economic downturn or a moderation in policy setting projections. In either scenario, market yields would likely move lower again which would be expected to benefit those investing at current yields.”

Felicity Walsh, Franklin Templeton’s Managing Director and Head of Australia and New Zealand, says “ the Western Asset Australian Bond Fund is an industry recognised actively managed fixed income portfolio with a history of adding return relative to its benchmark since its inception, which is reflected in the many awards Western Asset has won.” ^[3]

Walsh says: “Western Asset’s active approach keeps the Fund’s interest rate positioning nimble and seeks to take advantage of volatility, credit opportunities and yield curve positioning.

We will continue to provide access to our award-winning products and capabilities to a wide range of investors in Australia and we are excited to continue our long and valued relationship with Colonial First State.”, Walsh notes.

——–

The post Western Asset Australian Bond Fund added to CFS FirstChoice appeared first on AdviserVoice.

Western Asset is among the largest global specialist fixed income managers, with global funds under management at A$685 billion. Western Asset is one of Franklin Templeton’s specialist investment managers

Anthony Kirkham, Head of Investment Management and Head of Australian Operations at Western Asset, says: “The situation we are in now is that Australian fixed income offers an attractive yield premium relative to other developed market bond markets. Investors are getting efficient returns for risk plus solid income generation.”

Western Asset’s view is that inflation remains challenging but it will ease into 2023. The RBA’s inflation forecasts recognise that headline inflation is likely to peak at around 6% in the second half of the year and trimmed mean inflation is likely to peak at around 4% before returning to the upper end of the target band of 2-3%.

As one of 11 countries with a AAA credit rating from the three international credit ratings agencies, backed by an attractive economic backdrop, Australia’s relatively lower inflation rate could suggest lower bond yields.

“We believe that market pricing has moved well beyond what is justified by fundamentals. Market pricing indicates the RBA will increase rates in consecutive meetings over the rest of this year, reaching 3% by year end, and continue into 2023, including multiple hikes greater than the standard 25 basis points,” Kirkham says.

Western Asset’s base case is that the RBA is likely to be more cautious in removing monetary policy accommodation. It is acutely aware of the impact of rising rates on consumer and business confidence, as well as the meaningful increase in the cost of living. Market pricing appears to be discounting these factors.

Kirkham says: “Our expectation is that the RBA’s projections for inflation entail a cash rate around 1.5%-1.75% by the end of the year – well below market expectations of around 3%.

“The bond market will benefit from evidence that the RBA is removing monetary accommodation in a responsible manner, without threatening economic growth, and also from a reduction in rates volatility globally.”

The post Australian bonds a compelling investment opportunity in today’s environment appeared first on AdviserVoice.

Mr Kirkham notes in the podcast discussion: “We think the market has now factored in too many interest rate hikes and therefore we increased our duration overweight in late March and have continued to do so in April.

“We believe that once the market settles down, the credit spreads will be able to consolidate and ultimately tighten from here as the fundamentals return to being the main focus.

“We note that investment grade corporate space in Australia is a standout due to the type and quality of issuers in our market, all of which are generally able to pass on any inflationary pressure due to monopolistic duopolistic positions, not to mention the regulated assets that are also prevalent in our market, who can obviously just pass this on through their pricing resets.

“Supranationals, sovereign and agencies (SSAs) are also offering solid value, having seen their spreads widen due to excessive selling by Japanese insurers who saw their annuity products triggered due to the super high Aussie dollar versus a weakening yen. We will reallocate to these bonds once we believe the selling is done.

“We will keep our duration and curve positioning very active to capture the volatility in markets. We managed to capture the moves in the first quarter. Obviously, we’ll look to capture the expected volatility in markets in Q2 as well.”

———

[1] Please note that all performance figures discussed are net of fees and as of the 31st of March 2022, unless otherwise noted.
Western Asset is an active fixed income manager and part of the Franklin Templeton group.

The post Opportunities persist for Australian fixed income investors appeared first on AdviserVoice.

Andy Sowerby

The Legg Mason Western Asset Australian Bond Fund has passed A$1 billion in funds under management, cementing its position as one of the leading Active Australian bond funds in the market.

This actively managed Fund is designed to outperform the Bloomberg AusBond Composite 0+ Year Index and is ranked top quartile in its peer group* over 3, 5, and 10. The Fund is designed to be a core holding in the defensive part of a well-diversified total portfolio and typically invests in Australian dollar-denominated debt securities paying fixed or floating rate coupons issued by governments, supranational bodies and Australian and foreign corporates. The Fund is headed by veteran fixed income investor and Portfolio Manager, Anthony Kirkham and is well supported by Western Asset’s extensive local and global resources.

A listed version of the Fund was launched in November 2018 as an Active ETF – the BetaShares Legg Mason Australian Bond Fund (managed fund) (ASX: BNDS). This is Australia’s first fixed income Active ETF.

Legg Mason Managing Director, Australia and New Zealand, Andy Sowerby, notes: “We have long argued that investors hold too little fixed income in portfolios and felt this had to change driven by two factors – a continued fall in the RBA cash rate allied to increasing concerns around the future returns of risk assets.

“To help investors deal with these forces we have purposefully developed a broad range of Fixed Income solutions and have seen strong interest and growth across the entire set. The Legg Mason Western Asset Bond Fund is one of the flagship offerings with a proven investment team, a compelling track record, and a highly rated and multi-award winning strategy.”

Anthony Kirkham, Head of Investment Management and Australian Operations at Western Asset, adds: “With equity market volatility increasing, as well as broader concerns around global growth and political outcomes, the defensive qualities of a well-constructed bond fund can add much-needed diversification and protection to an overall portfolio.  The Fund favours higher quality assets and currently has an average ‘AA’ credit rating.”

Mr Sowerby concluded: “The strong support for this Fund means it is now accessible across all the major platforms and can also be accessed on the ASX as an Active ETF-ASX ticker BNDS.

“Both the unlisted fund and BNDS are also very competitively priced with management costs of just 0.42% pa.”

The post Legg Mason Western Asset Australian Bond Fund crosses one billion dollars in funds under management appeared first on AdviserVoice.

The Legg Mason Western Asset Australian Bond Trust, managed by Legg Mason’s leading fixed interest specialist affiliate, Western Asset, provides investors with exposure to a portfolio of Australian fixed interest securities.

The Zenith Report notes that “we continue to maintain a high opinion of the Western Asset investment team and their ability to consistently meet the Fund’s excess return objective [….] the Fund presents as one of the strongest offerings in the Australian Fixed Interest (AFI) peer group.”

Zenith reports that the Western Asset fixed interest team of six is led by Anthony Kirkham, Head of Investment Management who retains a number of responsibilities across portfolio and business management. Zenith “continues to rate Kirkham highly, with our view formed over a number of years. Aside from Kirkham, the team has a complementary set of skills across sector rotation and credit selection.”

The report adds “Bonds can form a key component of an investor’s portfolio and more specifically their exposure to the fixed interest asset class, owing to the defensive characteristics that they often exhibit.

“An inverse relationship exists between the price of bonds and interest rates, the extent of which is not linear and varies according to existing market conditions and the perception of risk. Bonds generally exhibit a negative correlation with equities and will rise in price when growth assets are falling (and vice versa). Bonds are more likely to be favoured during times of heightened risk aversion and typically dampen investment portfolios against capital drawdowns.”

The Fund is deemed suitable for investors seeking exposure to an Australian fixed interest strategy that generates investment returns commonly through credit orientated activities including sector rotation and credit selection.”

Anthony Kirkham, head of Western Asset Australia says that this rating is a positive acknowledgment of the Fund which is appropriate for investors seeking exposure to domestic fixed interest and for blending with international fixed interest strategies to produce a more balanced set of investment
outcomes.

Andy Sowerby, Country Head and Managing Director Legg Mason adds “This Fund is a key offering amongst our market leading fixed income suite of products which are designed for clients to help them tailor portfolios to meet long term investment goals. Western Asset has a deeply resourced investment team and proven track record of outperformance in the Australian fixed interest sector and has established itself as a competitive presence in this key asset class. We are pleased that this fund has consistently been “Highly Recommended for the last 3 years.”

As at 31 March 2017, Western Asset had approximately $A 8.4 billion managed in core Australian fixed interest strategies. In the “Highly Recommended” Legg Mason Western Asset Australian Bond Fund Western Asset it manages approximately $A 470 million.

The post Zenith awards leading Legg Mason Western Asset Australian Bond Trust a ‘Highly Recommended’ rating appeared first on AdviserVoice.

Baird joins Western Asset from UBS Asset Management where he was an Investment Specialist in the Australian fixed income team. He was responsible for communicating Australian and global fixed income investment strategies to clients and consultants and supporting distribution and product development. Previously he worked at Zenith Investment Partners as a lead analyst for four years on debt and equity sector reviews.

Western Asset is one of the world’s leading fixed-income managers with assets under management of $US425.9bn globally. By devoting all its resources to fixed-income, Western Asset deploys multiple diversified strategies that benefit a range of clients across different environments so no one strategy dominates performance.

Anthony Kirkham, head of Western Asset Australia said: “We have created this role in response to the increased level of interests for our bond funds. In this low interest world investors are keen to construct a well-diversified and balanced portfolio and to utilise best of breed fixed income strategies. Jonathan has the experience and expertise to work with clients in this regard.”

Speaking about his appointment Baird said: “Western Asset is one of the world leaders in fixed income markets measured by performance and scale. I am delighted to join such an impressive organisation and look forward to working with new and existing clients to develop the best investment strategies for the current environment.”

Legg Mason Australia/New Zealand Managing Director Andy Sowerby said: “At Legg Mason, we have expanded our fixed income fund offering to create flexibility and choice for our clients. The range of funds managed by Western Asset are central to this offer. Jonathan brings a depth of expertise and insights that will bolster the strength of Legg Mason Group.”

“The Legg Mason Western Australian Bond Trust is now $470m in size and is Highly Recommended by both Lonsec and Zenith and was awarded the best Australian bond fund by Zenith last year, and a finalist in the upcoming Lonsec awards,” said Sowerby.

Legg Mason Western Asset funds available to Australian investors include:

• Legg Mason Western Asset Cash
• Legg Mason Western Asset Cash Plus
• Legg Mason Western Asset Australian Bond
• Legg Mason Western Asset Global Bond
• Legg Mason Western Asset Macro Opportunities

The post Jonathan Baird joins Western Asset as fixed interest investment specialist appeared first on AdviserVoice.

Anthony Kirkham

As the world grapples with an uncertain growth and global interest rate outlook, active and unconstrained strategies are more important than ever for fixed-income investors, according to Western Asset Management.

In a new white paper —Defending the Defensive: Protecting Your Fixed-Income Portfolio in a Low-Yield World— Western Asset, one of the world’s largest fixed-income managers, urges investment advisers to rethink the traditional “index-hugging” approach to defensive allocations.

Anthony Kirkham, Head of Melbourne Operations and Investment Management at Western Asset, said the following about the white paper, which was written by Western Asset’s Head of London Operations Michael Zelouf: “Central bank rate cuts, quantitative easing, a subdued global recovery and low inflation have left global bond yields at near-record lows. Against this background, a more flexible, active approach can provide the latitude needed to best position this ‘defensive’ asset class, which acts as a ballast to risk assets such as equities.”

Without the obligation to track the benchmark, long-only active strategies, and unconstrained strategies, have the potential to decouple a portfolio from prevailing market forces and offer alpha returns.

Passive strategy returns are entirely attributed to beta factors (general market movements); traditional active strategies have an attribution of around 75% to beta factors and 25% to alpha factors (manager skill driven); while unconstrained bond strategies increase this attribution to alpha to over 50%—delivering a low correlation to equities and traditional bond sectors.

“Unconstrained fixed-income strategies seek to achieve their objectives during both bullish and bearish bond environments, by rotating between government and spread sectors as well as managing duration, yield curve and volatility,” Mr. Kirkham said.

“Unconstrained is all about being nimble, responding to macroeconomic forces and seizing opportunities. It’s not something fixed-income has always been known for, but unconstrained funds are now becoming an important part of the mix because of their responsiveness,” said Mr. Kirkham.

Western Asset’s paper demonstrates how passive, long-only active and unconstrained approaches play out in three economic scenarios.

The base case is essentially what’s happening now: moderate growth and inflation, with a “low and slow” approach to interest rate rises.

A primary risk scenario that sees inflation rise in a belated respond to monetary stimulus. Bond prices fall sharply as markets price in higher interest rates, although over time, credit spreads narrow, because better growth supports credit fundamentals.

The third, less likely but more serious scenario, is a secondary “tail” risk: a deflationary stall in growth, where China and emerging markets drag down developed markets. Government bonds benefit but credit and other spread sectors perform poorly.

Under the primary and secondary scenarios, where bond investors are likely to focus on downside risks, active management, global and unconstrained strategies are likely to perform better in these environments.

“Ultimately, different strategies come to the fore depending on the macro environment,” Mr. Kirkham said.

“The take-out for investors is that there is no perfect fixed-income strategy for all weather—the key is to consider your investment outlook and the chief risks you see to your base case. Additionally, think about the factors driving the allocation to fixed-income in the first place.
“The appropriate mix of bond strategies you employ in a portfolio will be influenced by whether you are prioritising capital preservation, income, capital gain or any other number of factors.

“Overall, unconstrained and long-only active management solutions can have a clear role to play in an uncertain world. Given the level of manager skill required, however, investors must evaluate the manager’s resources, process and track record,” Mr. Kirkham said.

Click here to download the paper.

The post In an uncertain world, investors must defend the defensive appeared first on AdviserVoice.