Investor concern that a rise in the current exceptionally low interest rate environment could result in higher bond market volatility has increased their focus on the merits of a more flexible approach to bond investing.
With the US having raised rates in December, investors face a quandary of where to find attractive return opportunities in fixed income, while avoiding capital losses in the event of a downturn in fixed income markets.
The two new funds are:
- The Legg Mason Western Asset multi-asset credit fund, which offers income yield and tail-risk protection,; and,
- The Legg Mason Western Asset global total return investment grade bond fund, which seeks total returns from an investment-grade only portfolio.
Multi-asset credit fund
The multi-asset credit fund, managed by Western Asset’s California-based Christopher Orndorff, seeks to provide a solution that targets an attractive income from a portfolio of global high income securities while protecting against tail-risks.
The fund also seeks to minimise the downside risk to investors in the event of a credit market sell-off by employing a range of hedging strategies. The manager is seeking attractive returns with a volatility budget of 5-7%, by combining a globally diversified portfolio with tail risk protection.
The fund was launched on 31 December 2015 with assets of over £100m ($142.4m, €131.4m).
Global total return fund
The global total return investment grade bond fund is managed by a London-based team headed by Gordon Brown and Andrew Cormack. It seeks to maximise total return, while maintaining a focus on liquidity and preservation of capital, with volatility expected to remain below 6%.
Launched at a time when the traditional global fixed income benchmark – heavily weighted to US, Japanese and European government bonds – is close to an all-time low yield, the fund seeks to maximise returns from investment-grade rated bonds and currencies by combining a variety of global macro strategies with selected credit and other spread sector investments.
It will take an opportunistic approach to selecting credits holding a variety of higher-rated bonds issued by both companies and governments around the world, in both developed and emerging markets.
The fund will also have exposure to foreign currencies, with up to 25% in unhedged non-US dollar assets or currencies, and will use derivatives where appropriate, to maximise returns and manage portfolio risk.
2016 crossroads
Adam Gent, head of UK sales at Legg Mason, said: “Fixed income investors find themselves at a crossroads in 2016, with the recent rate rise in the US, and the potential for further action from some other central banks globally, creating both opportunities and risks.
“In such an uncertain environment, capital preservation is likely to be a priority for fixed income investors, but this does not mean they have to sacrifice income.”
