The Legg Mason Western Asset Australian Bond Fund is designed to maximise the investment opportunities from Australian fixed income as well as promote the defensive attributes that this asset class offers. The Fund is managed by the Legg Mason wholly owned affiliate Western Asset which is one of the world’s largest fixed income specialists.
Below, Portfolio Manager, Anthony Kirkham details why this Fund has been particularly successful and the process the team employs to deliver results.
Head of Investment Management,
Western Asset Australia
The Fund benefits from both Western Asset’s global scale and our local expertise. Over the Fund's long history, we have provided attractive risk adjusted returns for investors, outperforming the benchmark with lower risk. I believe that this is a result of our highly experienced, stable and globally integrated investment team, who adheres to a consistent investment philosophy that has been developed over the past 45 years.
This genuinely team based approach leverages the significant breadth of the firm’s resources to make balanced and well-informed investment decisions. We utilise our best ideas within an integrated risk management approach to build a portfolio that is designed to meet the long-term objectives of our clients.
Philosophically, we believe that securities have an intrinsic value which markets often misprice, providing investment opportunities. Through disciplined and rigorous analysis by our macroeconomic and credit research teams, we aim to systematically identify and then capitalise on such opportunities.
That said, it is our disciplined and risk controlled focus on diversification that has been the major difference. By holding diversified positions and sizing them appropriately, we ensure that no single factor can swamp our ability to outperform our benchmark.
Using our global research teams to assist with our credit decision process also sets us apart from many other managers, particularly with such a large proportion of local bonds issued by international companies. As this continues to grow, we expect this as a source of increasing value add for our portfolio. Having on-the-ground research teams covering international issuers at their home base allows for greater insight into their credit worthiness and resulting value offered by these securities.
Finally, active sector rotation, particularly in liquid sectors recognising the different valuation opportunities across the yield curve, has also been an important contributor to our outperformance.
Our investment process combines both top-down and bottom-up assessments of value:
Global growth is improving but it is weak by historical standards. Central banks are becoming a little less accommodative but current setting will still provide solid support to credit markets. Despite recent tightening in spreads we still see value from a fundamental and technical perspective in Australia but we are mindful of the credit cycle turning. We have positioned ourselves accordingly on the yield curve, and from a name and sub-sector perspective to manage overall spread duration and idiosyncratic risk.
Inflation is rising off a very low base and is unlikely to meet the RBA's target until 2018. With low wage inflation, likely until labour market slack is removed, it is our view that the RBA will leave rates unchanged throughout 2017. As a result, we see little risk of a sharply higher yield curve and therefore will focus more on capturing volatility rather than a solid thematic move in either direction.
On the Sector front we still like Supranationals relative to Semi Government bonds, due to their strong ratings, ample liquidity and higher relative yields. We prefer the 30-year Government bond over the 10-year bond for ballast to our credit market overweight, and because our curve remains steep relative to other markets.
In the credit space, we hold an overweight to large global ‘National Champions’ and the Australian major Banks because of the utility-like setup of their businesses and their significantly improved capital positions. We continue to like property trusts due to the quality of their assets and their low gearing positions. Finally, we maintain an overweight to utilities because of the stability of the regulatory environment and their solid risk adjusted return potential.
Legg Mason affiliate, Western Asset Management is one of the world's leading fixed income managers. Established in 1971, from offices in Pasadena, Hong Kong, London, Melbourne, New York, São Paulo, Singapore, Tokyo and Dubai, the company provides investment services for a wide variety of global clients, across an equally wide variety of mandates. Western Asset's long performance track record and global presence have positioned the company to continue its commitment to excellence in fixed-income investment management and client service. With a focus on long-term fundamental value investing that employs a top-down and bottom-up approach, the firm has nine offices around the globe and deep experience across the range of fixed income sectors.
ADVISER & CLIENT SERVICES
|General Enquiries:||Phone:1800 679 541
|Melbourne Office:||Level 47, 120 Collins Street|
Melbourne VIC 3000
PO Box 24011
Melbourne VIC 3001
|Sydney Office||Level 25, 88 Phillip Street
Sydney NSW 2000
Phone: +61 (3) 9017 8644
Mobile:+61 448 277 060
Phone: +61 (2) 8211 2759
Mobile:+61 401 625 388
Phone: +61 (2) 8211 2760
Mobile:+61 438 076 500
Past performance is not a guide to future returns.
All funds issued by Legg Mason Asset Management Australia Ltd, (“Legg Mason”) (ABN 76 004 835 849 AFSL 240827). Western Asset Management Company Pty Ltd ("Western Asset") is a division within Legg Mason. Before making an investment decision you should read the Product Disclosure Statements (“PDS") for the Legg Mason Western Asset Australian Bond Fund (ARSN 088 670 286) carefully and you need to consider, with or without too assistance of a financial advisor, whether such an investment is appropriate in light of your particular investment needs, objectives and financial circumstances. The PDS can be obtained at www.leggmason.com.au or on 1800 679 541. The product has not been prepared to take into account the investment objectives, financial objectives or particular needs of any particular person. Neither Legg Mason, nor any of its related parties guarantees any performance or the return of capital invested. Past performance is not necessarily indicative of future performance. Investments ae subject to risks, including, but not limited to, possible delays in payments and loss of income or capital invested.
* Source: Morningstar Direct. Ranked in the first quartile in its peer group among 91 funds within Morningstar Bonds Australia category as at 30 September 2017.
© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 (“ASXO”).
The Morningstar Rating is an assessment of a fund’s past performance – based on both return and risk – which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision.
Legg Mason Western Asset Australian Bond Fund received a 5-star Morningstar Rating™ as at 30 September 2017.
The Morningstar Analyst Rating™ for Legg Mason Western Asset Australian Bond strategy is 'Silver' as at 2 October 2017.
1 The Lonsec Rating (assigned April 2017) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Legg Mason Asset Management Australia Limited product(s), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: http://www.lonsecresearch.com.au/research-solutions/our-ratings
2 The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (Legg Mason Western Asset Australian Fund assigned June 2017) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith™ methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at http://www.zenithpartners.com.au/RegulatoryGuidelines. As at 31 August 2014. Past performance is not indicative of future performance.
The Professional Planner | Zenith Fund Awards are determined using proprietary methodologies. Fund Awards were issued October 6, 2017 and are solely statements of opinion and do not represent recommendations to purchase, hold or sell any securities or make any other investment decisions. Fund Awards are current for 12 months from the date awarded and are subject to change at any time. Fund Awards for previous years are referenced for historical purposes only.