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Legg Mason unconstrained fund to focus on govvies

Dublin-domiciled absolute return fund will seek to navigate rising interest rates


Jessica Tasman-Jones

Legg Mason has backed US and Mexican sovereign debt and currencies as it launches an unconstrained bond strategy for investors in Europe.

The Dublin-domiciled Brandywine Global Enhanced Absolute Return fund will run duration within -10 to +10 years in order to navigate rising interest rates.

The unconstrained global bond fund launches with the US (39.2%) as its largest country weighting, followed by Mexico (13.9%) and Malaysia (6.7%). The top currencies include the US Dollar (48.6%), the Mexican Peso (13.9%) and the Swedish Krona (12.2%).

Unconstrained bonds received robust net inflows last year, but Last Word Research forward-looking data suggests investor appetite has weakened. The number of fund selectors looking to cut their allocation over the next 12 months has doubled to 12% in Q2 2018 from 6% six months earlier, while there has been a significant drop in the number looking to increase their allocation.

Global Enhanced Absolute Return management

Managed by David Hoffman, Steve Smith, Jack McIntyre and Anujeet Sareen, the fund is based on an existing Brandywine Global strategy launched in 2012.

The absolute returns strategy aims to outperform the FTSE 3-Month T-Bill Index by 600 bps per annum, net of fees, on a rolling 36-month basis.

Hoffman says: “The environment for fixed income investors is finally changing following a decade of record low rates. For investors, this shift provides return-generating opportunities.”

The fund will be focused primarily on sovereign bonds, both from emerging and developed markets, although it is also able to allocate to corporate bonds and structured credit.

Long positions are concentrated in 10 to 20 markets.

Legg Mason head of UK distribution Alex Barry said the strategy provides portfolio diversification, protection and continued returns in a rising interest rate environment.

This week, Blackrock launched a ‘go-anywhere’ global bond strategy to help investors navigate the current interest rate environment.

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