Legg Mason Brandywine Global Fixed Income Fund

Transcription

1 Legg Mason Brandywine Global Fixed Income Fund Opportunities in Emerging Markets Anujeet Sareen, CFA Portfolio Manager Brandywine Global October 2017

2 BRANDYWINE GLOBAL INVESTMENT MANAGEMENT AN INTRODUCTION Brandywine Global is a mid-sized boutique investment firm - US$71.5 billion under management in equity and fixed income strategies employees worldwide, headquartered in Philadelphia, with offices in San Francisco, Montreal, Toronto, Singapore and London - Wholly owned subsidiary of Legg Mason, Inc. since All strategies are focused on capturing value anomalies. $10.2 Assets Under Management (by strategy type; USD billions) $5.7 $0.1 $55.5 Fixed Income Diversified Equity Fundamental Equity Multi-Asset Class Firm investment philosophy - Culture of partnership and teamwork - Small teams of experienced, performance-driven investors - Investment philosophies are tailored to the nature of the asset class. $7.3 $4.9 Assets Under Management (by region; USD billions) $4.9 $2.7 USA EMEA Japan Australia/New Zealand Asia Pacific Ex-Japan Canada $15.4 $36.3 Source: Brandywine Global, as at 30 June 2017.

3 BRANDYWINE S KEY FIXED INCOME PROFESSIONALS Stephen S. Smith Managing Director & Portfolio Manager David F. Hoffman, CFA Managing Director & Portfolio Manager Jack P. McIntyre, CFA Portfolio Manager Anujeet Sareen, CFA Portfolio Manager Global Fixed Income Portfolio Managers Global Credit Team Portfolio Managers Gerhardt (Gary) P. Herbert, CFA Portfolio Manager and Head of Global Credit Regina Borromeo 1 Portfolio Manager and Head of International High Yield Brian L. Kloss, JD, CPA Portfolio Manager and Head of High Yield Tracy Chen, CFA, CAIA Portfolio Manager and Head of Structured Credit Global Research, Fixed Income Core Team and Trading Francis A. Scotland 3 Director of Global Macro Research Richard Lawrence Senior Vice President, Portfolio Management Renato Latini, CFA Research Analyst Dorothee Rainis Research Analyst My Duong Global Macro Research Specialist Kristen Mugan Trader J. Patrick Bradley Senior Vice President, Investment Research Stephen Ye, CFA Research Analyst Min Tian, CFA Global Macro Research Associate Dennis W. Dow Head Trader, Fixed Income Joffre C. Wells Trader Brian L. Giuliano, CFA Vice President, Portfolio Management William Vaughan 1 Research Analyst Jackie Huang 3 Global Macro Research Associate Darren P. Clipston, CFA Trader W. Kevin Valdez, CFA Assistant Trader Michael Arno, CFA Research Analyst Alberto J. Boquin, CFA Research Analyst Carol Lye 2 Regional Portfolio Manager Travis Crumley Trader Equity Portfolio Managers & Analysts Risk Management / Portfolio Compliance Operations Marketing, Sales and Client Service Legal and Compliance Information Technology 3 Source: Brandywine Global, as at 31 December Employee of Brandywine Global Investment Management (Europe) Limited. 3 Employees of Brandywine Global Investment Management (Asia) Pte., Ltd. 3 Employees of Brandywine Global Investment Management (Canada) ULC.

4 MACRO OUTLOOK OPPORTUNITIES IN EMERGING MARKETS 4

5 EMERGING MARKET INFLATION HAS SHIFTED SIGNIFICANTLY LOWER 11 Emerging Countries - CPI Inflation 10 Annual % Change Source: Brandywine Global, as of 31 August Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 5

6 MONETARY POLICY IS CONSERVATIVE REAL SHORT TERM REMAIN ELEVATED 6 Emerging Countries - Real Short Term Interest Rate % Source, Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 6

7 EM BONDS STILL HAVE VALUE IN BOTH ABSOLUTE AND RELATIVE TERMS 4 Emerging Countries- Real 10 Year Bond Yield 4 Real 10Y Bond Yield Spread to G % % Source: Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 7

8 10 YEAR REAL YIELD RANKING 8 Real 10 Year Bond Yield Ranking Based on 12-Month % Change of Headline 6 = Bond Exposures in the LM BW GFI Fund 4 % Source: Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 8

9 FOREIGN BOND OWNERSHIP HAS MODERATED IN RECENT YEARS Mexico: Federal Government Securities Held Abroad (% of Total) Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Jan Sep May Brazil: Domestic Federal Debt Held by Nonresidents (% of Total) Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Malaysia: Foreign Holdings of Malaysian Debt Securities as % of Total May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Nov May Turkey: Domestic Debt held by Nonresidents as % of Total Outstanding Debt Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr Sep Feb Jul Dec May Oct Mar Aug Jan Jun Nov Apr 9

10 THE DOLLAR IS EXPENSIVE USD Major Currencies Index* BGIM PPP (Fitted Value) Difference as % of BGIM PPP Source: Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. *Footnote = Based on GDP weighted PPI of 6 countries: Euroland, Japan, UK, Canada, Switzerland, Sweden 10

11 EM CURRENCIES FLAG CHEAP ON PPP VALUATIONS 20 Percentage Deviation From BGIM PPP % TRY GBP KRW ZAR JPY NOK MXN RUB BRL MYR AUD SEK EUR INR PLN CAD HUF CHF CLP CNY IDR PHP TWD THB SGD NZD CZK USD Source: Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable 11

12 REER METRICS OFFER A SIMILAR MESSAGE 20 Real Effective Exchange Rate: Percentage Deviation from 10-Year MA % TRY JPY MYR MXN GBP RUB CAD BRL ZAR NOK PLN SEK EUR CLP HUF AUD PHP IDR CZK NZD CHF SGD THB KRW USD CNY INR Source: Brandywine Global, as at 18 September Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable 12

13 EXTERNAL BALANCES HAVE IMPROVED SUBSTANTIALLY Emerging Countries: Current Account Balance (% GDP) % GDP Source: Brandywine Global, as of 31 March Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 13

14 THE GLOBAL BACK DROP IS CONSTRUCTIVE 25 G6 Central Bank Balance Sheet OECD + Major Six Non-Mem: Standard Consumer Confidence, Amp Adj Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Apr Jan Oct Jul Source: Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 14

15 GLOBAL TRADE VOLUMES LIKELY TO IMPROVE FURTHER RWI/ISL Container-Throughput Index, 3MMA, %Yoy 58 JP Morgan Global Mfg PMI New Export Orders World Trade Volume %YoY Source: Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 15

16 COMMODITY PRICES STABILIZING 700 CRB RIND Index Source: Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 16

17 ONE BELT ONE ROAD The One Belt One Road program (OBOR) is a development strategy proposed by Chinese President Xi Jinping in 2013 that focuses on connectivity and cooperation between Eurasian countries and China through the land-based "Silk Road Economic Belt" (SREB) and the "Maritime Silk Road" (MSR). It s about building infrastructure, mostly around transport and energy: roads, bridges, gas pipelines, ports, railways, and power plants. Involves 65 countries accounting for 62% of the world s population, 40% of world GDP, 75% of global energy resources. Anticipated cumulative investment over an uncertain timescale is estimated to be between US$4 trillion and US$8 trillion. Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 17

18 EMERGING MARKET RISKS & QUESTIONS The credit impulse has slowed in China. How meaningful will this be for growth and commodities? Can the Chinese system absorb the scale of credit expansion without a crisis? What will Xi Jinping Version 2.0 look like? Post the Party Congress in China, will he shift away from short term growth to long term stability in the financial system and environment? Can major central banks unwind quantitative easing policies without disrupting markets and economies? What geopolitical risks might derail the expansion? Source: Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 18

19 MEXICAN ASSETS LOOK PARTICULARLY ATTRACTIVE Mexico: Real Broad Effective Exchange Rate Index Mexico: Non-Oil Trade Balance Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Mexico: Tourist Revenues 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q Mexico: Core CPI, Annual Rate, 3MMA Data as of 31 August 2017 Source: Data has been obtained by Thomson Reuters Datastream ( 2017, Thomson Reuters) which Brandywine Global believes to be accurate and reliable. Charts created by Brandywine Global. 19

20 PHILOSOPHY & PROCESS 20

21 BASIC TENETS OF OUR INVESTMENT PHILOSOPHY 1. Seeking Value/Minimising Risk Buy securities trading below and avoid securities trading above their intrinsic value. Risk is the probability of permanent capital loss. Risk is not a benchmark relative measure. 2. Capital Markets Are Regulators of Growth Extremes in asset prices trigger economic and/or policy reactions that lead to prices reverting back to their intrinsic level 3. Mean Reversion We utilise the over- and under-valuations of interest rates and currencies arising from these macro factors along with the feedback cycle in an effort to generate return and protect capital. While we are benchmark aware, we do not believe in traditional indexing/benchmark hugging. - Traditional benchmark construction favors investing in the biggest debtors instead of the most disciplined. - Traditional benchmark construction logic likely increases risk rather than lowering it. 21

22 LEGG MASON BRANDYWINE GLOBAL FIXED INCOME FUND Investment Grade, sovereign only Fund Stable and experienced management team with long-term track record The team has over three decades of experience Total return investment approach that benefits from a macro-driven process that focuses on high real yields High conviction, benchmark agnostic strategy Positions in the Fund are based on the manager s conviction level not index weightings Diversification benefits historic returns are not highly correlated to competitor funds Risk control that provides a defensive strategy without sacrificing upside 22 These are the views of Brandywine Global and as such are subject to change.

23 INVESTMENT MANAGER TRACK RECORD GLOBAL FIXED INCOME The performance of the Brandywine Global Fixed Income Investment Grade (IG) Composite has been used to demonstrate the portfolio manager s longer term track record in managing global bonds Since July 1995 / Based on quarterly returns / Single computation 125 % 120 % Upside Capture 115% 110 % 10 5 % Global Fixed Income IG (Gross) Global Fixed Income IG (Net) Performance driven, but defensive style: Brandywine returned 13% more than the market during up periods and avoided 65% of the market downside. Citigroup World Government Bond Index 10 0 % 95% 10 % 30% 50% 70 % 90% 110 % Downside Capture Source: Brandywine Global, as at 30 June Based on Global Fixed Income (IG) composite return. The composite includes all fully discretionary, fee- paying actively managed Global Fixed Income accounts with a minimum market value of $3 million. Returns are presented gross of fees and assume reinvestment of dividends, interest, capital gains and other earnings. There are differences between the composite return and the Legg Mason Brandywine Global Fixed Income Fund including differences in the amount of assets under management, cash flows, fees and expenses, and applicable regulatory requirements, including investment and borrowing restrictions. The past performance of the Brandywine Fixed Income product is, therefore, not indicative of the future performance of the Legg Mason Brandywine Global Fixed Income Fund. 23

24 PORTFOLIO CHARACTERISTICS & COMPARISONS AS AT 31 AUGUST 2017 Country Allocation vs Citigroup WGBI (USD) (% of Portfolio) Currency Allocation vs Citigroup WGBI (USD) (% of Portfolio) 24 Source: Brandywine Global, as at 31 August Portfolio characteristics may change without notice.. The negative Euro currency exposure is is not a breach of internal guidelines, but it is due to the trade date accounting method used in the BW reporting system.

25 PORTFOLIO CHARACTERISTICS & COMPARISONS AS AT 31 AUGUST 2017 Source of Portfolio Duration by Currency Denomination 8.5% 9.4% 17.7% 14.5% 14.3% 35.5% Mexican peso US dollar Polish Zloty Australian dollar South African rand Other Currencies Duration Contribution by Country Vs Citigroup WGBI (USD) (In Years) Duration Contribution by Currency (In Years) 25 Source: Brandywine Global, as at 31 August Portfolio characteristics may change without notice.

26 FUND PERFORMANCE RETURNS AS AT 31 AUGUST 2017 Annualised Performance in USD Legg Mason Brandywine Global Fixed Income Fund Class P Acc. USD Citigroup World Government Bond Index % Month 3 Months Year-to-Date 1 Year 3 Years 5 Years Since Inception 24 March Source: Legg Mason as at 31 August NAV to NAV with gross income reinvested without initial charges but reflecting annual management fees, based in USD for class A shares. Past performance is not an indicator of future results and may not be repeated. Performance for periods of less than 1 year is not annualised.

27 FUND PERFORMANCE RETURNS AS AT 31 AUGUST 2017 Annualised Performance in USD Legg Mason Brandywine Global Fixed Income Fund Class A Distr. (S) USD Citigroup World Government Bond Index % Month 3 Months Year-to-Date 1 Year 3 Years 5 Years 10 Years Since Inception 1 October Source: Legg Mason as at 31 August NAV to NAV with gross income reinvested without initial charges but reflecting annual management fees, based in USD for class A shares. Past performance is not an indicator of future results and may not be repeated. Performance for periods of less than 1 year is not annualised.

28 FUND PERFORMANCE RETURNS AS AT 31 AUGUST 2017 Annualised Performance in USD Legg Mason Brandywine Global Opportunistic Fixed Income Fund Class P Acc. USD Citigroup World Government Bond Index % Month 3 Months Year to Date 1 Year 3 Years 5 Years Since Inception 06 January Source: Legg Mason as at 31 August NAV to NAV with gross income reinvested without initial charges but reflecting annual management fees, based in USD for class A shares. Past performance is not an indicator of future results and may not be repeated. Performance for periods of less than 1 year is not annualised.

29 BRANDYWINE S GLOBAL FIXED INCOME FUNDS PARAMETERS Outperformance Target (RFP) Legg Mason Brandywine Global Fixed Income Fund 200bp over Citi WGBI over 3-5 year market cycle. Legg Mason Brandywine Global Opportunistic Fixed Income Fund 250bp over Citi WGBI over a 3-5 year market cycle. Sources of alpha country selection, currency, duration country selection, currency, duration, credit Legg Mason Brandywine Global Fixed Income Absolute Return Fund LIBOR +300bp over a 3-5 year market cycle country selection, currency, duration, credit, short positions Legg Mason Brandywine Global Sovereign Credit Fund 250bp annually over benchmark over 3-5 period over 3-5 year market cycle country selection, currency, duration Allocation limits Governments No limit (100% IG at purchase) No limit No limit Min two thirds in govt issued or backed Currencies May not be short currency, May not be short currency, Total long currency %, See prospectus for net exposure limits vs or long more than 100% or long more than 100% short 0-70% benchmark weight Investment Grade Only short term obligations of commercial N/A Max 40% Max 40% Credit banks (cash equivalents) High Yield Credit N/A Max 15% None Mortgage and Asset Backed N/A Max 20% Max 20% None Credit N/A Max 75% Max 75% Emerging Markets Max 20% in Non-Index Countries (aggregate) rated below A- by all NRSROs¹ which rate the debt² N/A No limit Below Investment Min BB- at purchase N/A Max 35% Max 35% Grade (or A1 for short term debt); A- Duration range Duration range of 1-10 yrs Duration range of 1-10 yrs Duration range of +/- 5 yrs Avg weighted duration +/- 36 months vs benchmark Ann. Volatility 7.15% (3 years) 7.54% (3 years) 4.94% (3 years) Derivatives Can use derivatives but not widely Can use derivatives but not widely Active use of derivatives for alpha and Can use derivatives for alpha and hedging. implemented. Mainly currency forwards implemented. Mainly currency forwards hedging Mainly currency forwards Inception date (fund) 01/10/ /06/ /04/ /06/2014 Inception date (composite) 30/06/ /12/ /05/ /05/2012 Fund AUM 976M 600M 1072M 2402M ISIN IE Class A US$ Distr. (S) IE00B3V5M979 - Class A US$ Distr. (M) IE00B59BT671 - Class A US$ Acc. IE00BMMV5Y32 Class LM US$ Acc. 29 Source: Brandywine Global, as at 31 December Past performance is not a reliable indicator of future results. 1 NRSRO means one of the following Nationally Recognized Statistical Rating Organizations: Standard & Poor s Ratings Services, Moody s Investor Service, Inc., and Fitch, Inc. Ratings categories for country/currency are determined by the local currency long-term debt ratings assigned by NRSROs. Global Fixed Income Investment Grade portfolios are subject to interest rate, credit and currency risks, among others, and there can be no assurance that such portfolios will achieve their stated objectives. 2 This refers to the country s local currency denominated long-term debt, which must be rated A- by S&P or the equivalent by all NRSROs rating the debt.

30 BRANDYWINE S GLOBAL FIXED INCOME FUNDS PERFORMANCE Global Investment-Grade Sovereign Fixed Income Composite (USD) Annualized Performance UCITS Fund: Legg Mason Brandywine Global Fixed Income Fund QTD YTD 1 Year 2 Years 3 Years 5 Years 10 Years Since Inception Gross 3.38% 12.89% 6.73% 7.55% 1.63% 2.77% % Net 3.31% 12.56% 6.26% 7.07% 1.17% 2.31% % Citigroup WGBI (USD) 3.05% 7.68% -0.87% 4.34% 0.16% 0.06% % Excess Return (Gross) 0.33% 5.22% 7.60% 3.21% 1.46% 2.71% % Composite Inception Date: 6/30/2010 Global Opportunistic Fixed Income Composite (USD) Annualized Performance UCITS Fund: Legg Mason Brandywine Global Opportunistic Fixed Income Fund QTD YTD 1 Year 2 Years 3 Years 5 Years 10 Years Since Inception Gross 3.71% 14.10% 8.03% 8.95% 2.55% 3.85% 6.81% 8.08% Net 3.63% 13.76% 7.55% 8.47% 2.09% 3.38% 6.33% 7.55% Citigroup WGBI (USD) 3.05% 7.68% -0.87% 4.34% 0.16% 0.06% 3.33% 4.56% Excess Return (Gross) 0.66% 6.42% 8.89% 4.61% 2.39% 3.78% 3.48% 3.52% Composite Inception Date: 12/31/1997 Global Unconstrained Fixed Income Composite (USD) Annualized Performance UCITS Fund: Legg Mason Brandywine Global Fixed Income Absolute Return Fund QTD YTD 1 Year 2 Years 3 Years 5 Years 10 Years Since Inception Gross 1.42% 8.43% 9.34% 5.96% 3.34% 4.36% % Net 1.31% 7.93% 8.57% 5.19% 2.58% 3.58% % Citigroup 3 Month T-Bill 0.17% 0.47% 0.58% 0.38% 0.26% 0.18% % Excess Return (Gross) 1.26% 7.95% 8.76% 5.58% 3.08% 4.18% % Composite Inception Date: 5/31/2008 Global Sovereign Credit Composite (USD) Annualized Performance UCITS Fund: Legg Mason Brandywine Global Sovereign Credit Fund QTD YTD 1 Year 2 Years 3 Years 5 Years 10 Years Since Inception Gross 3.77% 15.26% 7.12% 8.56% 0.78% 4.12% % Net 3.65% 14.73% 6.38% 7.80% 0.08% 3.40% % Bloomberg Barclays 60/40 Sovereign Credit (USD) 2.84% 10.98% 2.84% 5.84% -1.48% 0.07% % Excess Return (Gross) 0.93% 4.28% 4.28% 2.71% 2.26% 4.05% % Composite Inception Date: 4/30/ Source: Brandywine Global, as at 31 August 2017.

31 GLOBAL FIXED INCOME INVESTMENT-GRADE COMPOSITE DISCLOSURE Index 1: CWGBI = Citigroup WGBI (USD) Index 2: = Bloomberg Barclays Global Aggregate Inception Date: 7/1/1992 Organization: Brandywine Global Investment Management, LLC (the "Firm") is a wholly owned, independently operated, subsidiary of Legg Mason, Inc. The Firm has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS). For the periods July 1, 2000 through June 30, 2016, the Firm has been verified by Kreischer Miller. A verification includes assessing whether the Firm (1) complied with the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) designed its processes and procedures to calculate and present performance results in compliance with the GIPS standards. A copy of the verification report is available upon request. Disclosed total firm assets represent the total market value of all discretionary and nondiscretionary, fee-paying and non-fee-paying assets under the Firm's management. Composite Description: The Global Fixed Income Investment Grade Composite (the "Composite") Inception date: July 1, Creation date: July 1, The Composite includes all fully discretionary, fee-paying portfolios managed in the Global Fixed Income Investment Grade Strategy. The strategy invests only in U.S. and foreign investment grade fixed income securities with portfolios typically invested in securities from 8 to 15 different countries. Effective Oct 1, 2008, The Composite was amended and a number of client-restrictive accounts were removed. This restructuring accounted for a significant portion of the Composite's market value decrease. The Composite utilizes over-the-counter forward exchange rate contracts to manage its currency exposure. 31

32 GLOBAL INVESTMENT-GRADE SOVEREIGN FIXED INCOME COMPOSITE DISCLOSURE Index 1: CWGBI = Citigroup WGBI (USD) Index 2= JP Morgan Global Govt Bond Index Inception Date: 7/1/2010 Organization: Brandywine Global Investment Management, LLC (the "Firm") is a wholly owned, independently operated, subsidiary of Legg Mason, Inc. The Firm has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS). For the periods July 1, 2000 through June 30, 2016, the Firm has been verified by Kreischer Miller. A verification includes assessing whether the Firm (1) complied with the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) designed its processes and procedures to calculate and present performance results in compliance with the GIPS standards. A copy of the verification report is available upon request. Disclosed total firm assets represent the total market value of all discretionary and nondiscretionary, fee-paying and non-fee-paying assets under the Firm's management. Composite Description: The Global Investment Grade Sovereign Only Composite (the "Composite") Inception date: July 1, Creation date: July 1, The Composite includes all fully discretionary, fee-paying portfolios managed in the Global Investment Grade Sovereign Only Strategy. The strategy invests only in U.S. and foreign investment grade sovereign debt securities with portfolios typically invested in securities from 8 to 12 different countries. The Composite utilizes over-the-counter forward exchange rate contracts to manage its currency exposure. These contracts are valued daily using closing forward exchange rates. Brandywine uses WM/Reuters daily FX rates taken at 4 p.m. London time. Benchmark: The Citigroup World Government Bond Index measures the performance of developed countries' global fixed income markets invested in debt issues of U.S. and non-u.s. governmental entities.the J.P. Morgan Government Bond Index is the most widely-used measure of performance of leading government bond markets. The indices measure the total, principal, and interest returns in each market and can be reported in 18 different currencies. Performance Calculation: Preliminary data, if so noted, reflects unreconciled data for the most recent reporting period. Portfolios are valued daily on a trade date basis and include dividends and interest as well as all realized and unrealized capital gains and losses. Return calculations at the portfolio level are time-weighted to account for periodic contributions and withdrawals. Performance results are calculated on a before tax, total return basis. The Composite returns consist of size-weighted portfolio returns using beginning of period values to weight the portfolio returns. Monthly linking of interim performance results is used to calculate quarterly and annual returns. Composite's valuations and returns are computed in U.S. Dollars ("USD"). The results are presented in USD or in other currencies (to accommodate overseas investors), the latter by converting monthly USD returns into other currency returns using the appropriate currency exchange rate returns. Gross returns reflect the deduction of trading expenses. Net of fee returns reflect the deduction of trading expenses and the highest investment management fees charged within the composite membership as stated in the fee schedule below. Composite dispersion is calculated using the asset-weighted standard deviation method for all portfolios that were in the Composite for the entire year. Composite dispersion is not presented for periods with five or fewer portfolios. The number of accounts and market values are as of the end of the period. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Past performance is no guarantee of future results. A complete list describing the Firm's composites as well as any additional information regarding the Firm's policies for calculating and reporting performance results is available upon request. Fee Schedule: Institutional Client Separate Account Management Fee Schedule (minimum initial investment: $50 million): 0.450% on the first $50 million; 0.400% on the next $50 million, and 0.350% on any portion of assets in excess of $100 million. Additional information on the Firm's fee schedule can be found in Form ADV Part 2A which is available upon request. 32

33 GLOBAL UNCONSTRAINED FIXED INCOME COMPOSITE DISCLOSURE Organization: Brandywine Global Investment Management, LLC (the "Firm") is a wholly owned, independently operated, subsidiary of Legg Mason, Inc. The Firm has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS). For the periods July 1, 2000 through June 30, 2014, the Firm has been verified by Kreischer Miller. A verification includes assessing whether the Firm (1) complied with the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) designed its processes and procedures to calculate and present performance results in compliance with the GIPS standards. A copy of the verification report is available upon request. Disclosed total firm assets represent the total market value of all discretionary and nondiscretionary, fee-paying and non-fee-paying assets under the Firm's management. Composite Description: The Global Unconstrained Fixed Income Composite (the "Composite") Inception date: June 1, Creation date: June 1, The Composite includes all fully discretionary, feepaying, actively managed Global Unconstrained Fixed Income accounts with limited client mandated restrictions. Portfolios are constructed by synthetically reproducing the alpha (independent of the beta) generated by the Firm's Global Opportunistic Fixed Income Strategy. The use of derivatives will increase risk in the strategy. Alpha can be synthetically reproduced based on securities held in the portfolio, or as an overlay on securities held by clients outside of the portfolio (Unfunded Notional Value). The Unfunded Notional Value (in millions) was $210.4 at Dec 31, 2010; $229.5 at Dec 31, 2009; and $350.9 at Dec 31, This Unfunded Notional value is used in the asset-weighted composite return, but is not included in the Composite Market Value. No Commercial Paper will be employed to implement the Composite's strategy. The Composite utilizes over-the-counter forward exchange rate contracts to manage its currency exposure, these contracts are valued daily using closing forward exchange rates. Brandywine uses WM/Reuters daily FX rates taken at 4 p.m. London time. Benchmark indices' exchange rates may vary from Brandywine's exchange rates periodically. Effective March 31, 2016, the composite was changed from "Global Opportunistic Absolute Return" to more accurately reflect the strategy's investable universe. Benchmark: The Citigroup 3-Month U.S. Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. Each month the index is rebalanced and the issue selected is the outstanding Treasury Bill that matures closest to, but not beyond 3 months from the rebalancing date. London-Interbank Offered Rate (LIBOR) - British Bankers Association Fixing for US Dollar. The rate is an average derived from the quotations provided by the banks determined by the British Bankers' Association. The top and bottom quartile is eliminated and an average of the remaining quotations calculated to arrive at fixing. BBA USD LIBOR is calculated on an ACT/360 basis and for value for two business days after the fixing. Performance Calculation: Preliminary data, if so noted, reflects unreconciled data for the most recent reporting period. Portfolios are valued daily on a trade date basis and include dividends and interest as well as all realized and unrealized capital gains and losses. Return calculations at the portfolio level are time-weighted to account for periodic contributions and withdrawals. Performance results are calculated on a before tax, total return basis. The Composite returns consist of size-weighted portfolio returns using beginning of period values to weight the portfolio returns. Monthly linking of interim performance results is used to calculate quarterly and annual returns. Composite's valuations and returns are computed in U.S. Dollars ("USD"). The results are presented in USD or in other currencies (to accommodate overseas investors), the latter by converting monthly USD returns into other currency returns using the appropriate currency exchange rate returns. Gross returns reflect the deduction of trading expenses. The net of fee return does not include a performance incentive fee; it's comprised solely of the base management fee. Composite dispersion is calculated using the assetweighted standard deviation method for all portfolios that were in the Composite for the entire year. Composite dispersion is not presented for periods with five or fewer portfolios. The number of accounts and market values are as of the end of the period. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Past performance is no guarantee of future results. A complete list describing the Firm's composites as well as any additional information regarding the Firm's policies for calculating and reporting performance results is available upon request. Fee Schedule: The Institutional Client Separate Account Management Fee Schedule (minimum initial investment: $50 million): 0.750% on the first $50 million; 0.650% on any portion of assets in excess of $50 million or a base fee of 0.15% plus 15.00% of performance in excess of the 3 month Treasury Bill (Citigroup Index). Institutional Client Commingled Account Management Fee Schedule (minimum initial investment: $1 million): 0.650% Flat fee on all assets or a base fee of 0.15% plus 15.00% of performance in excess of the 3 month Treasury Bill (Citigroup Index) Additional information on the Firm's fee schedule can be found in Form ADV Part 2A which is available upon request. 33

34 GLOBAL SOVEREIGN CREDIT COMPOSITE (USD) DISCLOSURE B6040 = Barclays 60/40 Sovereign Credit Index (USD) Inception Date: 5/1/2012 Organization: Brandywine Global Investment Management, LLC (the "Firm") is a wholly owned, independently operated, subsidiary of Legg Mason, Inc. The Firm has prepared and presented this report in compliance with the Global Investment Performance Standards (GIPS). For the periods July 1, 2000 through June 30, 2014, the Firm has been verified by Kreischer Miller. A verification includes assessing whether the Firm (1) complied with the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) designed its processes and procedures to calculate and present performance results in compliance with the GIPS standards. A copy of the verification report is available upon request. Disclosed total firm assets represent the total market value of all discretionary and nondiscretionary, fee-paying and non-fee-paying assets under the Firm's management. Composite Description: The Global Sovereign Credit Composite (the "Composite") Inception date: May 1, Creation date: May 1, The Composite includes all fully discretionary, fee-paying, actively managed accounts within the Global Sovereign Credit strategy that are unhedged. The strategy strives to capture interest income and additionally generate principal growth through capital appreciation when market conditions permit. Our goal is to outperform the investment benchmark by at least 2.5% per annum over rolling three-year periods while minimizing volatility of return relative to the composite index. The Composite utilizes over-the-counter forward exchange rate contracts to manage its currency exposure. These contracts are valued daily using closing forward exchange rates. Brandywine uses WM/Reuters daily FX rates taken at 4 p.m. London time. Benchmark indices' exchange rates may vary from Brandywine's exchange rates periodically. Benchmark: The Barclays Capital 60/40 Sovereign Credit Index; an unhedged, customized blend of the Barclays Capital Global Treasury Index and the Barclays Capital Local Emerging Market index. The weighting between developed (DM) and emerging markets (EM) is fixed at 40%/60% respectively, and the maximum weight per country is 10%. Non-investment grade countries are excluded. If a country is included in both the Barclays Capital EM and DM indices, it is deemed to be EM and therefore fall into the 60% bucket. Performance Calculation: Preliminary data, if so noted, reflects unreconciled data for the most recent reporting period. Portfolios are valued daily on a trade date basis and include dividends and interest as well as all realized and unrealized capital gains and losses. Return calculations at the portfolio level are time-weighted to account for periodic contributions and withdrawals. Performance results are calculated on a before tax, total return basis. The Composite returns consist of size-weighted portfolio returns using beginning of period values to weight the portfolio returns. Monthly linking of interim performance results is used to calculate quarterly and annual returns. Composite's valuations and returns are computed in U.S. Dollars ("USD"). The results are presented in USD or in other currencies (to accommodate overseas investors), the latter by converting monthly USD returns into other currency returns using the appropriate currency exchange rate returns. Gross returns reflect the deduction of trading expenses. Net of fee returns reflect the deduction of trading expenses and the highest investment management fees charged within the composite membership as stated in the fee schedule below. Composite dispersion is calculated using the asset-weighted standard deviation method for all portfolios that were in the Composite for the entire year. Composite dispersion is not presented for periods with five or fewer portfolios. The number of accounts and market values are as of the end of the period. The three-year annualized standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Past performance is no guarantee of future results. A complete list describing the Firm's composites as well as any additional information regarding the Firm's policies for calculating and reporting performance results is available upon request. Fee Schedule: Institutional Client Separate Account Management Fee Schedule (minimum initial investment: $1 million): 0.400% on the first $100 million; 0.330% on the next $400 million; 0.250% on any portion of assets in excess of $500 million. Additional information on the Firm's fee schedule can be found in Form ADV Part 2A which is available upon request. 34

35 IMPORTANT INFORMATION These are sub-funds of Legg Mason Global Funds plc ( LMGF plc ), an umbrella fund with segregated liability between sub-funds, established as an open-ended investment company with variable capital, organised as an undertaking for collective investment in transferable securities ( UCITS ) under the laws of Ireland as a public limited company pursuant to the Irish Companies Acts and UCITS regulations. LMGF plc is authorised in Ireland by the Central Bank of Ireland. It should be noted that the value of investments and the income from them may go down as well as up. Investing in a sub-fund involves investment risks, including the possible loss of the amount invested. Past performance is not a reliable indicator of future results. An investment in a sub-fund should not constitute a substantial proportion of an investor s investment portfolio and may not be appropriate for all investors. Investors attention is drawn to the specific risk factors set out in a fund s share class key investor information document ( KIID ) and LMGF plc s prospectus. There is no guarantee or assurance that funds will achieve their investment objectives. This material is not intended as a complete summary or analysis. The information and data in this material has been prepared from sources believed reliable but is not guaranteed in any way by any Legg Mason, Inc. company or affiliate (together "Legg Mason"). No representation is made that the information is correct as of any time subsequent to its date. Individual securities mentioned are intended as examples only and are not to be taken as advice nor are they intended as a recommendation to buy or sell any security or related investment. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or needs of investors. Legg Mason Brandywine Global Fixed Income Fund Bonds: There is a risk that issuers of bonds held by the fund may not be able to repay the bond or pay the interest due on it, leading to losses for the fund. Bond values are affected by the market s view of the above risk, and by changes in interest rates and inflation. Liquidity: In certain circumstances it may be difficult to sell the fund s investments because there may not be enough demand for them in the markets, in which case the fund may not be able to minimise a loss on such investments. Concentrated fund: The fund invests in fewer bonds than other funds which invest in bonds usually do. This means that the fund does not spread its risk as widely as other funds and will therefore be affected more if an individual investment performs poorly. Fund currency: Changes in exchange rates between the currencies of investments held by the fund and the fund's base currency may negatively affect the value of an investment and any income received from it. Interest rates: Changes in interest rates may negatively affect the value of the fund. Typically as Interest rates rise, bond values fall. Derivatives: Investment in derivatives may cause the fund to lose as much as or more than the amount invested. Use of derivatives may also result in greater fluctuations of the value of the fund. Fund counterparties: The fund may suffer losses if the parties that it trades with cannot meet their financial obligations. Fund operations: The fund is subject to the risk of loss resulting from inadequate or failed internal processes, people or systems or those of third parties such as those responsible for the custody of its assets. Class currency: The value of your investment may fall due to changes in the exchange rate between the currency of your share class and the base currency of the fund. Legg Mason Brandywine Global Opportunistic Fixed Income Fund Bonds: There is a risk that issuers of bonds held by the fund may not be able to repay the bond or pay the interest due on it, leading to losses for the fund. Bond values are affected by the market s view of the above risk, and by changes in interest rates and inflation. Liquidity: In certain circumstances it may be difficult to sell the fund s investments because there may not be enough demand for them in the markets, in which case the fund may not be able to minimise a loss on such investments. Low rated bonds: The fund may invest in lower rated or unrated bonds of similar quality, which carry a higher degree of risk than higher rated bonds. Emerging markets investment: The fund may invest in the markets of countries which are smaller, less developed and regulated, and more volatile than the markets of more developed countries. Interest rates: Changes in interest rates may negatively affect the value of the fund. Derivatives: Investment in derivatives may cause the fund to lose as much as or more than the amount invested. Use of derivatives may also result in greater fluctuations of the value of the fund. Fund counterparties: The fund may suffer losses if the parties that it trades with cannot meet their financial obligations. Fund operations: The fund is subject to the risk of loss resulting from inadequate or failed internal processes, people or systems or those of third parties such as those responsible for the custody of its assets, especially to the extent that it invests in developing countries. 35

36 IMPORTANT INFORMATION Legg Mason Brandywine Global Fixed Income Absolute Return Fund Bonds: There is a risk that issuers of bonds held by the fund may not be able to repay the bond or pay the interest due on it, leading to losses for the fund. Bond values are affected by the market s view of the above risk, and by changes in interest rates and inflation. Liquidity: In certain circumstances it may be difficult to sell the fund s investments because there may not be enough demand for them in the markets, in which case the fund may not be able to minimise a loss on such investments. Interest rates: Changes in interest rates may negatively affect the value of the fund. Fund counterparties: The fund may suffer losses if the parties that it trades with cannot meet their financial obligations. Fund operations: The fund is subject to the risk of loss resulting from inadequate or failed internal processes, people or systems or those of third parties such as those responsible for the custody of its assets. Legg Mason Brandywine Global Sovereign Credit Fund Concentrated fund: The fund's investment approach may result in the fund investing in fewer bonds focused in one, or a small number of, countries, sectors or asset classes compared to other bond funds. This means that the fund may be more sensitive to economic, market, political or regulatory events than other funds that invest in more bonds across a broader range of countries, sectors and asset classes. Bonds: There is a risk that issuers of bonds held by the fund may not be able to repay the investment or pay the interest due on it, leading to losses for the fund. Bond values are affected by the market's view of the above risk, and by changes in interest rates and inflation. Liquidity: In certain circumstances it may be difficult to sell the fund's investments because there may not be enough demand for them in the markets, in which case the fund may not be able to minimise a loss on such investments. Low rated bonds: The fund may invest in lower rated or unrated bonds of similar quality, which carry a higher degree of risk than higher rated bonds. Emerging markets investment: The fund may invest in the markets of countries which are smaller, less developed and regulated, and more volatile than the markets of more developed countries. Asset-backed securities: The timing and size of the cash-flow from asset-backed securities is not fully assured and could result in loss for the fund. These types of investments may also be difficult for the fund to sell quickly. Fund currency: Changes in exchange rates between the currencies of investments held by the fund and the fund's base currency may negatively affect the value of an investment and any income received from it. Interest rates: Changes in interest rates may negatively affect the value of the fund. Typically as interest rates rise, bond values fall. Derivatives: The Fund makes significant use of derivatives. The use of derivatives can result in greater fluctuations of the fund's value and may cause the fund to lose as much as or more than the amount invested. Fund counterparties: The fund may suffer losses if the parties that it trades with cannot meet their financial obligations. Fund operations: The fund is subject to the risk of loss resulting from inadequate or failed internal processes, people or systems or those of third parties such as those responsible for the custody of its assets, especially to the extent that it invests in developing countries. Before investing investors should read in their entirety LMGF plc s application form and a sub-fund s share class KIID and the Prospectus (which describe the investment objective and risk factors in full). These and other relevant documents may be obtained free of charge in English, French, German, Greek, Italian, Norwegian and Spanish from LMGF plc s registered office at Riverside Two, Sir John Rogerson s Quay, Grand Canal Dock, Dublin 2, Ireland, from LMGF plc s administrator, BNY Mellon Fund Services (Ireland) Limited, at the same address or from Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No Authorised and regulated by the UK Financial Conduct Authority. In Switzerland, issued and approved by Legg Mason Investments (Switzerland) GmbH, authorised by the Swiss Financial Market Supervisory Authority FINMA. Investors in Switzerland: The representative in Switzerland is FIRST INDEPENDENT FUND SERVICES LTD., Klausstrasse 33, 8008 Zurich, Switzerland and the paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1, 8024 Zurich, Switzerland. Copies of the Articles of Association, the Prospectus, the Key Investor Information Documents and the annual and semi-annual reports of the Company may be obtained free of charge from the representative in Switzerland. German investors: The prospectus, Key Investor Information Document, annual report and semi-annual report are available free of charge from the German Information agent [Legg Mason Investments (Europe) Limited, Zweigniederlassung Frankfurt am Main, MesseTurm, 21. Etage, Friedrich-Ebert-Anlage 49, Frankfurt a.m., Germany] or from October 2017 This information is only for use by professional clients, eligible counterparties or qualified investors. It is not aimed at, or for use by, retail clients. 36