Global Multi-Sector (GMS) Strategy

Transcription

1 Global Multi-Sector (GMS) Strategy In today s volatile environment, the ability to allocate tactically across global markets is of ever increasing importance. Many investors may be looking to draw on a mix of sectors and asset classes within their own borders while also diversifying globally. Since 1996, the Global Multi-Sector (GMS) strategy has provided investors access to the global fixed-income universe and has sought to enhance returns and reduce overall volatility by combining all sectors of the global fixed-income markets with moderate currency exposure. s investment philosophy is to provide diversified, tightly controlled value-oriented portfolios. Our management style emphasizes multiple strategies with active sector rotation and issue selection achieved within a risk-controlled framework through key strategic disciplines. These are the fundamental beliefs that underpin our philosophy and that permeate all portfolios at Western Asset. Long-term, Fundamental Value: Markets often misprice securities. Prices can deviate from fundamental fair value, but over time, they typically adjust to reflect inflation, credit quality fundamentals and liquidity conditions. Consistently investing in undervalued securities may deliver attractive investment returns. We can systematically identify mispricings. We believe we can identify and capitalize on markets and securities that are priced below fundamental fair value. We do this through disciplined and rigorous analysis, comparing prices to the fundamental fair values estimated by our macroeconomic and credit research teams around the globe. Our portfolios emphasize our highest convictions. The greater the difference between our view of fair value and markets pricing, the bigger the potential value opportunity. The greater the degree of confidence in our view of fundamentals, the greater the emphasis of the strategies in our portfolios. Multiple Diversified Strategies: We seek diversified sources of returns. Our objective is to meet or exceed our investors performance objectives within their tolerances for risk. We seek to diversify investments and add value across interest rate duration, yield curve, sector allocation, security selection, country and currency strategies. We deploy multiple diversified strategies that benefit in different environments so no one strategy dominates performance, helping to dampen volatility. Global Multi-Sector (GMS) Strategy GMS is a long-only global fixed-income strategy featuring strategic allocations to global government bonds, investment-grade corporate bonds, mortgage-backed and asset-backed securities as well as high-yield and emerging market (EM) debt. believes that diversifying strategies across these global sectors offers an abundance of attractive investment opportunities when combined with the Firm s disciplined fundamental-value investment philosophy and process and robust risk management framework. The emphasis is on balancing global credit risk with global sovereign exposures to create a portfolio capable of producing appealing returns with a moderate risk profile. believes that a diversified GMS strategy is well suited to perform across shifts in economic conditions, interest rate cycles and bond market environments. This is primarily achieved through value-driven rota-

2 Global Multi-Sector (GMS) Strategy tion across fixed-income sectors with differing risk profiles. These risk profiles tend to be correlated to different factors at any point in time, for example: Corporate bonds: corporate default risk Mortgage-backed securities: prepayment and convexity risk Emerging markets securities: developing country sovereign credit risk Global government bonds: industrialized country interest rate and currency risk believes that returns can be enhanced by rotating among and within sectors of the bond markets, and that a value driven approach to security and industry selection within sectors adds value to a portfolio. Because higher yielding sectors are generally more volatile, the GMS strategy is structurally diversified by sector, market and security to avoid concentration and increase the benefits of low correlations. Moreover, the GMS Portfolio Management Team works closely with the Risk Management Team to monitor the level and sources of risks and model the strategy s performance under different stress tests and scenarios. Risk will vary over time as the relative attractiveness of the available opportunities changes. Over the longer term, the expectation of risk, as measured by annualized standard deviation, is between 5% and 7% with a Sharpe Ratio of 1.0. The Firm s team-based investment process uses a combination of bottom-up research and top-down macroeconomic analysis. The key areas in adding value to a GMS portfolio are: Sector Allocation (40% of value added). seeks to enhance returns by applying its fundamental and sector-specific research to identifying those sectors which are seen to have the best relative value, total return potential and risk diversification characteristics. A key element to the process is the rotation across these sectors as on relative valuations, based on change in relation to prevailing economic and market conditions. Subsector/Issue Selection (40% of value added). identifies geographic and industry subsectors, credit quality tiers, issuers and security types that are deemed undervalued and are likely to benefit from the macroeconomic and fundamental outlook. Issue selection is implemented on an opportunistic basis as attractive trading opportunities occur. Duration/Yield Curve/Currency (20% of value added). For GMS portfolios, primarily treats duration as a risk control tool especially during periods of high systemic risk in emerging and high-yield corporate markets. Currency exposure is predominantly hedged with opportunistic exposure primarily through investments in underlying fixed-income securities. Average portfolio duration is generally in the range of 3 to 7 years. This allows the flexibility to take a defensive duration position to protect the portfolio in a rising rate environment. GMS can also allocate to less interest-ratesensitive sectors such as high-yield and bank loans. Allocation to the higher yielding and EM sectors can vary between 20% and 70% although the average quality of the strategy is maintained at BBB- or higher. has a track record in the GMS strategy dating back to The strategy is able to leverage the expertise and resources in each of the Firm s local offices in the US, Europe, Asia and Latin America. The Firm is experienced at proactively rotating among a variety of sectors, and a large part of the Firm s investment management team works directly or indirectly on this strategy. Applications for This Strategy The GMS strategy can play a variety of roles within an investment portfolio: Core global fixed-income with a strategic bias toward credit and EMs Investors seeking higher income generation potential Opportunistic fixed-income with a global opportunity set Viable substitute for equities, with a lower volatility profile 2

3 Why? is a global investment management firm committed to understanding the needs of each client, identifying investment solutions, and delivering superior long-term investment results We believe in value We employ a team-based approach with global breadth and local depth Philosophy: adheres to a long-term, fundamental value discipline. It seeks to generate outperformance over a market cycle by focusing on bottom-up sector, subsector and issuer selection, complemented by the Firm s top-down macroeconomic views. believes that its size, scope and depth of resources enable it to achieve effective diversification within each sector mandate and across its Multi-Strategy products. believes that having a global presence provides it with perspective and the ability to access and capitalize on opportunities worldwide. The Firm believes that the integration of high-level analytics and sound risk management processes enables and supports effective investment decisions. Decision-Making Process: generates returns through active management of fixed-income portfolios. Sources of added value include bottom-up subsector, issuer and security selection. is researchfocused with research analysts on five continents. Risk management and portfolio analytics are integrated into the Firm s investment process. Top-down economic analysis is a critical component of its investment approach, with a focus on long-term trends and results. Portfolio managers work in collaboration with sector and subsector managers to create asset allocations and to determine appropriate duration and yield curve exposures. The sector specialist teams then work in collaboration with the analysts to identify long-term value opportunities. Portfolio analytics and risk management provide a real-time feedback loop to the portfolio management team on portfolio risk exposure and performance metrics. Team-Managed: At, investment professionals in seven offices around the globe are focused exclusively on fixed-income investing. continues to focus on bottom-up investment research, integrated risk management, portfolio analytics and top-down investment management. We provide investment solutions Long-Term Approach, Long-Term Performance: Established in 1971, focuses on long-term performance and has always been client-centric in its approach. The Firm works with clients to identify and understand performance objectives and risk tolerances. s philosophy has never varied; it remains focused on long-term fundamental value opportunities in the fixed-income markets. The Firm s objective is to provide clients with the long-term performance they seek. Its approach is collaborative, focused and consistent. Management Company This publication is the property of Management Company and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidential and proprietary information. This material may not be reproduced or used in any form or medium without express written permission. Past results are not indicative of future investment results. This publication is for informational purposes only and reflects the current opinions of Management. Information contained herein is believed to be accurate, but cannot be guaranteed. Opinions represented are not intended as an offer or solicitation with respect to the purchase or sale of any security and are subject to change without notice. Statements in this material should not be considered investment advice. Employees and/or clients of Management may have a position in the securities mentioned. This publication has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness having regard to your objectives, financial situation or needs. It is your responsibility to be aware of and observe the applicable laws and regulations of your country of residence. Management Company Distribuidora de Títulos e Valores Mobiliários Limitada is authorized and regulated by Comissão de Valores Mobiliários and Banco Central do Brasil. Management Company Pty Ltd ABN is the holder of the Australian Financial Services Licence Management Company Pte. Ltd. Co. Reg. No R is a holder of a Capital Markets Services Licence for fund management and regulated by the Monetary Authority of Singapore. Management Company Ltd is a registered financial instruments dealer whose business is investment advisory or agency business, investment management, and Type II Financial Instruments Dealing business with the registration number KLFB (FID) No. 427, and members of JIAA (membership number ) and JITA. Management Company Limited ( WAMCL ) is authorized and regulated by the Financial Conduct Authority ( FCA ). In the UK this communication is a financial promotion solely intended for professional clients as defined in the FCA Handbook and has been approved by WAMCL.

4 Executive Summary (as of March 31, 2017) Global Multi-Sector Objective Style Vehicles Maximise total return from income and capital appreciation within a volatility target of 5%-7%. Construct a strategic multi-sector portfolio by investing in global fixed-income markets and currencies. Primarily, these are mortgage- and asset-backed securities, high-yield corporate securities, investment-grade corporate securities and emerging market securities. Value can be added by active sector selection and by security selection. Portfolio risk is controlled through broad diversification across markets and sectors Separate Account Commingled Performance Global Multi-Sector Composite* (gross) Global Multi-Sector Composite* (net) Total Return (%) Returns for periods greater than one year are annualized. Please see the Performance Disclosure for more information. * Represented by Global Multi-Sector (USD Unhedged) Composite. The Global Multi-Sector Strategy is not measured against a benchmark. There is no benchmark available which appropriately reflects the strategy. 0 1 Year 3 Years 5 Years 10 Years Since Inception 01-Nov-96 Sector Allocation (%) Portfolio Portfolio CDS CDS 12.8 Governments Governments 12.8 Supranationals MBS/ABS Agencies 6.5 US MBS/ABS Corporates EUR/UK Covered Corporates Bonds US Corporates US High Yield 3.9 EUR/UK Corporates 23.0 EUR/UK High Yield Other Corporates 3.3 US US High-Yield Bank Loans Local EUR/UK Emerging High-Yield Markets US Bank Loans -1.8 Emerging Market Corporates Local Emerging Markets USD Emerging Emerging Market Markets Corporates USD Emerging CDX.USD.HY Markets CDX.USD.HY Other 0.2 Other 0.2 Cash & Cash Equivalents Cash & Cash Equivalents Portfolio Characteristics: (as of 31 Mar 17) Leverage None Credit Quality BBB- Effective Duration 5.77 years Spread Duration 4.18 years Yield-to-Worst 5.04% Strategy AUM: US$2.7 billion (as of 31 Mar 17) Separate Account Fee:.40 of 1% on first US$100 million.20 of 1% on amounts over US$100 million The minimum separate account size for the Global Multi-Sector portfolio is US$50 million or 50 million. Note: Sector allocation includes look-through to any underlying commingled vehicles if held. All weightings are a percentage of total market value. A negative cash position may be reported, which is primarily due to the portfolio's unsettled trade activity. Data may not sum to 100% due to rounding. Past results are not indicative of future investment results. This material may not be reproduced or used in any form or medium without express written permission. Management Company 2017 First Quarter 2017

5 Performance Disclosure December 31, 2016 Global Multi-Sector (USD Unhedged) Composite Composite Inception Date: 11/01/1996 Composite Creation Date: 11/01/1996 No. of Accts Gross Total Return Net Total Return Benchmark Total Return Gross Total 3-Yr St Dev Benchmark Total 3-Yr St Dev Internal Dispersion Mkt. Value (US$mil) Percentage of Firm Assets Firm Assets (US$mil) % 7.35% 4.02% $1, % $621, % % 8.86% $1, % $505, % 32.26% 11.43% $2, % $482, % 9.71% 11.89% $2, % $453, % 3.33% 8.91% $2, % $443, % 11.46% 5.86% $3, % $461, % -2.06% 5.62% $2, % $451, % 2.82% 4.92% $2, % $466, % -4.22% 5.17% $1, % $433, % 11.92% 5.39% $1, % $425,909 Description: 's Global Multi-Sector (USD Unhedged) Composite includes portfolios that employ an active, team-managed investment approach around a long-term, value-oriented investment philosophy. These portfolios use diversified strategies and all sectors of the fixed-income market in seeking to add value while minimizing risk. The approach is to construct a strategic multi-sector portfolio by investing in global fixed-income markets and currencies. Primarily, these are mortgage-backed and asset-backed securities, high-yield corporate securities, investment-grade corporate securities and emerging market securities. Objective: Maximise total return from income and capital appreciation within a volatility target of 5%-7%. Benchmark Description: The Composite is not measured against a benchmark as accounts that may comprise the Composite are measured on an absolute return basis. There is no benchmark available that appropriately reflects the guidelines of all accounts within the Composite. Base Currency: USD Composite Minimum: $25 million as of 4/1/07 (previously $5 million). Current Fee Schedule:.40 of 1% on the first $100 million,.20 of 1% on amounts over $100 million. Examination Period: The Composite has been examined for the period from November 1, 1996 to December 31, The Composite returns and summary information have been restated to historically include one account that was previously excluded due to strategy misclasification. Such restatement resulted in a change to the Annual Gross and Net Total Return for % and -0.15%. claims compliance with the Global Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. has been independently verified for the periods from January 1, 1993 to December 31, Verification assesses whether (1) the Firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the Firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The verification and performance examination reports are available upon request. For GIPS purposes, the Firm is defined as, a primarily fixed-income investment manager comprised of Management Company, Management Company Limited, Management Company Pte. Ltd., Management Company Ltd, Management Company Pty Ltd, and Management Company Distribuidora de Títulos e Valores Mobiliários (DTVM) Limitada, with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Dubai. Each company is a wholly owned subsidiary of Legg Mason, Inc. ("Legg Mason") but operates autonomously, and, as a Firm, is held out to the public as a separate entity. Management Company was founded in The Firm is comprised of several entities as a result of various historical acquisitions made by, and their respective performance has been integrated into the Firm in line with the portability requirements set forth by GIPS. The Composite is valued monthly. The Composite returns are the asset-weighted average of the performance results of all the accounts in the Composite. Gross-of-fees returns are presented before management fees, but after all trading expenses. Net of fees results are calculated using a model approach whereby the current highest tier of the appropriate strategy's fee schedule is used. This model fee does not reflect the deduction of performance-based fees. The portfolios in the Composite are all actual, fee-paying and performance fee-paying, fully discretionary accounts managed by the Firm for at least one full month. results shown are for taxable and tax-exempt accounts and include the reinvestment of all earnings. Any possible tax liabilities incurred by the taxable accounts have not been reflected in the net performance. Composite performance results are time-weighted net of trading commissions and other transaction costs including non-recoverable withholding taxes. Policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. The returns for the accounts in the Composite are calculated using a time-weighted rate of return adjusted for weighted cash flows. The returns for the commingled funds in the Composite are calculated daily using net asset values (NAV), adding back the funds' total expense ratio or equivalent. Trade date accounting is used since inception and market values include interest income accrued on securities held within the accounts. Performance is calculated using asset values denominated in a base currency. Composite market value at year-end presented in the schedule are translated to U.S. dollars using end of year exchange rates. Composite returns are measured against a benchmark. The benchmark is unmanaged and provided to represent the investment environment in existence during the time periods shown. For comparison purposes, its performance has been linked in the same manner as the Composite. The benchmark presented was obtained from third party sources deemed reliable but not guaranteed for accuracy or completeness. Benchmark returns and benchmark three-year annualized ex-post standard deviation are not covered by the report of independent accountants. Internal dispersion is calculated using the asset-weighted standard deviation of annual gross returns of those portfolios that were included in the Composite for the entire year. For each annual period, accounts with less than 12 months of returns are not represented in the dispersion calculation. Periods with five or fewer accounts are not statistically representative and are not presented. The three-year annualized ex-post standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. The three-year annualized ex-post standard deviation is not presented for periods where 36 monthly returns are not available for the composite or the benchmark. Any gross total three-year annualized ex-post standard deviation measures prior to 2011, included within the "Examination Period" identified above, are not covered by the report of independent accountants. Past investment results are not indicative of future investment results. 's list of composite descriptions is available upon request. Please contact Jan Pieterse at or jan.pieterse@westernasset.com. All returns for strategies with inception prior to January 1, 2007 are available upon request. For more information on visit our website at