LEGG MASON WESTERN ASSET GLOBAL MULTI STRATEGY FUND

Transcription

1 LEGG MASON WESTERN ASSET GLOBAL MULTI STRATEGY FUND Ian R. Edmonds Western Asset Management 4 June 214 LEGG MASON GLOBAL FUNDS PLC BASED ON FUND DATA AS AT 3 APRIL 214 This document is for Asset Managers, Fund Distributors and Authorised Intermediaries. Not for use by Private Individuals.

2 WESTERN ASSET MANAGEMENT GLOBAL REACH Western Asset - dedicated to fixed income: Wholly owned subsidiary of Legg Mason, Inc. One of the world s leading global fixed income managers with $468.7 bn in assets under management worldwide Long standing experience dating back to 1971 Focuses on managing fixed income assets Coverage of all global fixed income sectors Extensive experience in managing investment grade and high yield corporate bonds Stable and experienced management team Team driven, sector emphasis A global investment management firm committed to understanding the needs of each client, identifying investment solutions and delivering superior long-term investment results Source: Western Asset Management, as at 31 March 214. * Includes Derivatives and Economics. Sector Global research driven investment teams Global professionals London professionals Mortgage Backed 1 Emerging Markets 12 Governments 28 5 Investment Grade 24 7 High Yield 15 3 Short Duration 1 1 Municipal 12 Insurance 1 Other* 6 Portfolio Operations 54 8 Product 18 Offices in Pasadena, New York, London, Melbourne, Tokyo, Singapore, Hong Kong Dubai and Sao Paulo 2

3 WESTERN ASSET GLOBAL BREADTH & LOCAL DEPTH 1 Pasadena $185.4bn Investment professionals: 53 Total staff: New York $193.9bn Investment professionals: 24 Total staff: 91 3 São Paolo $14.3bn Investment professionals: 16 Total staff: 65 Total AUM: $468.7bn 8 Countries Total staff: London 5 Dubai $39.6bn Total staff: 1 Investment professionals: 18 Total staff: GMS Portfolio - Ian Edmonds Singapore 7 Hong Kong $4.6bn Total staff: 1* Investment professionals: 4 Total staff: Tokyo 9 Melbourne $14.4bn Investment professionals: 6 Total staff: 28 $16.5bn Investment professionals: 5 Total staff: 17 Government Investment Grade Credit High Yield Emerging Markets Mortgage Backed Securities 3 Source: Western Asset Management, as at 31 March 214. Assets under management in USD (billions). *Splits time between Hong Kong and Singapore offices.

4 LEGG MASON WESTERN ASSET GLOBAL MULTI SECTOR STRATEGY Best ideas approach - flexibility to tap into the best global fixed income opportunities Seeks out opportunities from a wide range of global fixed income sectors including government bonds, corporate bonds (investment grade and high yield), mortgage-backed securities and emerging market debt Utilises the full capabilities of Western Asset, one of the world s largest managers of fixed income investments with a truly global perspective Active, team-managed investment approach around a long-term, value-oriented investment philosophy, using diversified strategies and all sectors of the fixed income market seeking to add value while minimising risk. Target Maximise total return through income and capital appreciation Assets under management in the Global Multi Sector strategy* Western s total Global Multi Sector Strategy Assets: $4.39 billion as at 31 March 214 This Fund may invest in non-investment grade bonds, which carry a higher degree of default risk than investment grade bonds. It may invest in emerging markets that may be less liquid and may have less reliable custody arrangements than mature markets and may involve a higher degree of risk. Unlike a bank or building society account, your money is at risk. *Please refer to the GIPS composite disclosure in the appendix for details on the number of accounts in the composite. 4

5 PROCESS AND PERFORMANCE 5

6 RISK CONTROLS: SECTOR ALLOCATION Global Multi-Sector Strategy 7% 3% Conservative Liquid/Interest Rate Sensitive 5% 5% High Income/Growth Neutral 3% 7% Aggressive Liquid/Interest Rate Sensitive Sectors Cash Developed Market Governments/Agencies Lower Risk Investment Grade Credit High Income/Growth Sectors High Yield Emerging Markets Higher Risk Investment Grade Cedit These are internal limits/ guidelines and are subject to change. 6

7 HISTORIC SECTOR ALLOCATION OF THE FUND Percent of Portfolio (Market Value) USD Emerging Markets Inflation-linked ABS/MBS High Yield/Bank Loans Investment Grade Credit Governments/ Agencies Cash/Cash Equivalents 2 1 Local Emerging Markets Emerging Market Emerging Market Sovereigns Corporates Dec 2 Dec 3 Dec 4 Dec 5 Dec 6 Dec 7 Dec 8 Dec 9 Dec 1 Dec 11 Dec 12 Dec 13 As of 3 Apr 14 Source: Western Asset Management, as at 3 April

8 LEGG MASON WESTERN ASSET GLOBAL MULTI STRATEGY FUND Performance to 3 April (USD) Legg Mason WA Global Multi Strategy Fund - Cl A Distr. (D) USD % Aug '2 Jan '3 Jun '3 Nov '3 Apr '4 Sep '4 Feb '5 Jul '5 Dec '5 May '6 Oct '6 Mar '7 Aug '7 Jan '8 Jun '8 Nov '8 Apr '9 Sep '9 Feb '1 Jul '1 Dec '1 May '11 Oct '11 Mar '12 Aug '12 Jan '13 Jun '13 Nov '13 Apr '14 Source: Legg Mason as at 3 April 214 for Class A Distr. (D) USD shares. Cumulative performance is calculated on a NAV to NAV basis, with gross income reinvested and after deduction of annual fund expenses. Past performance is not a reliable indicator of future results. The Fund launched on 3 August 22. 8

9 INVESTMENT RESULTS: GLOBAL MULTI SECTOR COMPOSITE The Global Multi Sector Composite has been used to demonstrate the longer term track record of the manager Source: Western Asset, as at 3 April 214, in US Dollar. Data is preliminary and may be subject to change. Performance is shown gross of investment advisory fees. Returns for periods greater than one year are annualised. From 1 October 25, the current custom Index is comprised of 5% Barclays Global Aggregate Index; 25% Barclays High Yield Index-2% Issuer Cap; 25% JP Morgan EMBI+ Index. From 1 January 22 to 3 September 25 the Custom Index was comprised of 5% Lehman Global Aggregate Index; 25% Lehman Brothers High Yield Index; 25% JP Morgan EMBI+ Index. Prior to that, the Custom Index was comprised of 5% Citigroup World Government Bond Index Unhedged; 25% Lehman Brothers High Yield Index; 25% JP Morgan EMBI+ Index. There may be differences between the strategy composite and the 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 and allocations of the strategy composite may not be indicative of the fund over the same period. For more information on the strategy composite see the composite disclosure in the appendix. Inception date: 1 November

10 INVESTMENT RESULTS: GLOBAL MULTI SECTOR COMPOSITE The Global Multi Sector Composite has been used to demonstrate the longer term track record of the manager 91% (177/194) monthly rolling 1-year periods of positive absolute return 8% (156/194) monthly rolling 1-year periods of positive returns relative to cash month USD LIBOR Global Multi-sector Composite Total Return (%) Source: Western Asset Management, as at 31 March 214, in US Dollars Performance gross of investment advisory fees. There may be differences between the strategy composite and the 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 and allocations of the strategy composite may not be indicative of the fund over the same period. For more information on the strategy composite see the composite disclosure in the appendix. Inception date: 1 November Past performance is not a reliable indicator of future results. 1

11 LEGG MASON WESTERN ASSET GLOBAL MULTI STRATEGY FUND: PORTFOLIO POSITIONING As at 3 April 214 Country (%) US 56 Governments 8 Sector (%) Eurozone Rating** (%) UK Mexico Poland Brazil South Africa China Turkey Cash/Cash Equivalents AAA AA A BBB <BBB Cash/Cash Equivalents Portfolio Yield* : 4.4 % Duration : 5.5 years Avg. Rating** : BBB Source: Western Asset Management, as at 3 April 214. Percentage allocations are rounded to whole numbers *Yield to Worst. **Higher of rating = Average of S&P, Moody, Fitch, and Western Asset s ratings. MBS/ABS US Corporates Euro/UK Corporates itraxx EUR US High Yield Euro/UK High Yield US Bank Loans itraxx EUR Xover Local Emerging Markets USD Emerging Markets Emerging Market Corporates Cash/Cash Equivalents US Dollar Euro Mexican Peso Chinese Renminbi Polish Zloty Brazilian Real Indian Rupee Japanese Yen Australian Dollar CDS Currency (%) 11

12 LOOKING FORWARD 12

13 MANAGING FIXED INCOME IN A RISING INTEREST RATE ENVIRONMENT 13

14 HISTORICALLY, THE FUND HAS PERFORMED WELL IN RATE RISE ENVIRONMENTS 5.5% Yield NAV 23 5.% % 19 4.% 3.5% 3.% 2.5% 2.% 1 Year US Treasury (LH) LM WA GMS Fund (RH) % Aug-2 Nov-2 Feb-3 May-3 Aug-3 Nov-3 Feb-4 May-4 Aug-4 Nov-4 Feb-5 May-5 Aug-5 Nov-5 Feb-6 May-6 Aug-6 Nov-6 Feb-7 May-7 Aug-7 Nov-7 Feb-8 May-8 Aug-8 Nov-8 Feb-9 May-9 Aug-9 Nov-9 Feb-1 May-1 Aug-1 Nov-1 Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 9 The Fund has experienced a number of periods where government bond yields have risen by around 1 basis points or more in a matter of months (as highlighted in grey). Diversified exposure to high yield corporate bonds has enabled the manager to maintain performance in rising government bond yield environments. Source: Bloomberg, Legg Mason, as at 3 November 213. Performance refers to the A Inc. USD Share class. NAV to NAV with gross income reinvested without initial charges but reflecting annual management fees. Past performance is not an indicator of future results and may not be repeated. 14

15 IS FED POLICY AT A TURNING POINT? Today, the Committee has further revised its forward guidance Janet Yellen, March 19, 214 How will investors respond to economic data now that the thresholds have been removed? 5 Market and FOMC Expectations for Federal Funds Rate Market: Range Last 12 Months Market: 24 Mar 14 FOMC Members FOMC Median Percent Source: Federal Reserve, Bloomberg, Western Asset. As of 24 Mar 14 15

16 US TREASURY YIELD CURVES Apr 17* Yield to Maturity (%) Apr Source: Bloomberg. As of 3 Arp 14 *Market expected 3 year forward Years to Maturity There is no guarantee that forecasts or estimates will be correct. 16

17 US YIELD CURVE SLOPE 3 Yield Curve Slope and the Fed's Hiking Cycle 5y3y Spread (left) Federal Funds Target (right) Basis Points Percent Source: Bloomberg, Western Asset. As of 28 Mar 14 17

18 THE VALUE IN CREDIT? 18

19 SECTOR ALLOCATION: CORPORATE BONDS 7 Corporate Bond Spreads 6 5 Eurozone Crisis Basis Points 4 3 Enron WorldCom Lehman Bros. 2 Russia/LTCM US 1 SE Asia UK Euro Source: Merrill Lynch. As of 3 Apr 14 19

20 EYES WIDE OPEN FOR RELEVERAGING TRENDS USD (billions) Announced S&P 5 share buybacks USD (billions) Completed S&P 5 share buybacks Q1 4Q1 3Q2 2Q3 1Q4 4Q4 3Q5 2Q6 1Q7 4Q7 3Q8 2Q9 1Q1 4Q1 3Q11 2Q12 1Q13 4Q13 2Q8 3Q8 4Q8 1Q9 2Q9 3Q9 4Q9 1Q1 2Q1 3Q1 4Q1 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 4Q97 3Q98 2Q99 1Q 4Q 3Q1 2Q2 1Q3 4Q3 3Q4 2Q5 1Q6 4Q6 3Q7 2Q8 1Q9 4Q9 3Q1 2Q11 1Q12 4Q12 3Q13 Volumes (quarterly,usd billions) North American M&A volumes Volumes (quarterly, USD billions) North American LBO volumes 1Q1 4Q1 3Q2 2Q3 1Q4 4Q4 3Q5 2Q6 1Q7 4Q7 3Q8 2Q9 1Q1 4Q1 3Q11 2Q12 1Q13 4Q13 Source: Bloomberg, Bank of America Merrill Lynch. As of 31 Dec 213 2

21 CORPORATE BOND VALUATIONS: US HIGH YIELD 25 2 US High Yield Spread Percent BoAML's US Default Rate Source: Bank of America, Merrill Lynch. As of 3 Apr 14 6 US High Yield Price Return Coupon Return Total Return Return (%) YTD 214 Source: Merrill Lynch. As of 3 Apr 14 21

22 ALPHA OPPORTUNITIES IN HIGH YIELD 22

23 THE SMALLER ISSUES ARE BETTER PRICED 8 Credit Suisse High-Yield Index Spread and Yield by Issue Size OAS YTW 12% % 6 5 p s ) (b S 4 A O 3 8.3% % % % 8% 6% 4% Y T W (% ) 2 1 2% < CS HY Index USD (millions) Source: Credit Suisse. As of 31 Mar 14 % 23

24 NEW ISSUANCE STILL FOCUSED ON REFINANCING n s ) ilio (b D S U High-Yield Volume YTD 31 Mar 14 Source: Citigroup. As of 31 Mar 14 High-Yield Volume by Purpose as of 31 Mar 14 Other 12% Recap / Dividend 2% Recap / Other 3% LBO 4% M&A 2% Refinancing 59% Source: Citigroup, As at 31 March 214. LBO = Leveraged Buyout. 24

25 EMERGING MARKETS - OPPORTUNITY OR TOO RISKY? 25

26 EMERGING MARKETS GOVERNMENT DEBT TRENDS Percent Foreign Currency Debt/General Government Debt (%) Indonesia Russia Mexico Turkey Brazil India 27 Percent General Government Debt/GDP (%) Indonesia Russia Mexico Turkey Brazil India Source: Moody's, Western Asset Source: Moody s, Western Asset, as at 31 December

27 OPPORTUNITIES IN EMERGING MARKETS 25 Emerging Markets versus US Credit Emerging Market Sovereign Emerging Market Corporates 2 15 Spread (bps) Source: JP Morgan, Western Asset. As of 3 Apr 14 USD denominated investment grade Note: 1 basis point =.1% 27

28 EMERGING VERSUS DEVELOPED BOND YIELDS VALUATION GAP REMAINS WIDE 1 9 Local Currency Emerging Markets Yield (%) Developed Markets Source: JP Morgan. As of 3 Apr 14 28

29 EMERGING MARKETS: AN ASSET CLASS WITH THREE DISTINCT SECTORS 1,2 Size of Investable Universe is USD 2.28 Trillion 1, EMD Local Currency Sovereign 941 USD (billions) EMD USD Sovereign 2 EMD USD Corporate Credit Source: Sectors represented by JPMorgan indices. As of 31 Mar 14 EMD USD Sovereign represented by JPM EMBI Global Index EMD USD Corporate Credit represented by JPM CEMBI Broad Index EMD Local Currency Sovereign represented by JPM GBI-EM Global Diversified Index 29

30 CEMBI BROAD INDEX EVOLUTION BY COUNTRY, ISSUER AND ISSUES Countries Issuers Issues ,4 214 YTD ,72 1,2 1, CEMBI Broad Evolution Countries Issuers Issues Change (#) ,14 Change (%) 231 1,185 1,748 2 Change (#) vs. 212 Year to Date Market Value: USD 746 billion Source: JPMorgan, Bloomberg and Western Asset. As of 3 Apr YTD 3

31 INVESTMENT RESULTS: GLOBAL MULTI SECTOR COMPOSITE The Global Multi Sector Composite has been used to demonstrate the longer term track record of the manager Risk/Reward Since Inception (1 November 1996) to 3 April 214 Description Index Global Credit (US$ hedged) Barclays Global Credit (US$ Hedged) US$ Emerging Markets JP Morgan EMBI+ 3-Month US$ LIBOR 3-Month US$ Libor Global HY (US$ hedged) Barclays Global High Yield (US$ Hedged) Commodities Dow Jones UBS Commodity TR US Equities S&P 5 US Mortgages Global Aggregate (US$ Unhedged) Local Currency Emerging Markets (US$ Unhedged) Merrill Lynch US Mortgage Master Barclays Global Aggregate (US$ Unhedged) JP Morgan GBI-EM Local Currency (US$ Unhedged) Source: Barclays, JP Morgan and Bloomberg, as at 3 April 214, in US Dollars. *as at 1 December 28 the Custom Index is comprised of 5% Barclays Global Aggregate Index; 25% Barclays High Yield Index-2% Issuer Cap; 25% JP Morgan EMBI+ Index. From 1/1/5 to 31/11/8 the Custom Index was comprised of 5% Lehman Global Aggregate Index; 25% Lehman Brothers High Yield Index-2% Issuer Cap; 25% JP Morgan EMBI+ Index. From 1/1/2 to 3/9/5 the Custom Index was comprised of 5% Lehman Global Aggregate Index; 25% Lehman Brothers High Yield Index; 25% JP Morgan EMBI+ Index. Prior to that, the Custom Index was comprised of 5% Citigroup World Government Bond Index Unhedged; 25% Lehman Brothers High Yield Index; 25% JP Morgan EMBI+ Index. There may be differences between the strategy composite and the 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 and allocations of the strategy composite may not be indicative of the fund over the same period. For more information on the strategy composite see the composite disclosure in the appendix. 31

32 APPENDIX 32

33 LEGG MASON WESTERN ASSET GLOBAL MULTI STRATEGY FUND Performance to 3 April 214 Annualised (USD) Legg Mason Western Asset Global Multi Strategy Fund - Class A Distr. (D) USD BBA Libor 3 Month USD % Months Year-to-Date 6 Months 1 Year 3 Years 5 Years 1 Years Since Inception (3.8.2) Source: Legg Mason as at 3 April 214 for Class A Distr. (D) USD shares. Annualised performance is calculated on a NAV to NAV basis, with gross income reinvested and after deduction of annual fund expenses. Past performance is not a reliable indicator of future results. 33

34 BIOGRAPHY IAN R. EDMONDS EXPERIENCE 1994 present Western Asset Management Limited Portfolio Manager/Research Analyst Bacon & Woodrow Actuary EDUCATION University College London, BSc 34

35 COMPOSITE DISCLOSURE as at 31 December 213 Please note effective October 31, 28, all indices previously called "Lehman Brothers" have been renamed "Barclays Capital". This change is a name change only due to Barclays Capital's re-branding of its unified family of indices. 35

36 COMPOSITE DISCLOSURE Western Asset claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Western Asset has been independently verified for the periods from January 1, 1993 to December 31, 212. 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 Western Asset, a primarily fixed-income investment manager comprised of Western Asset Management Company, Western Asset Management Company Limited, Western Asset Management Company Pte. Ltd., Western Asset Management Company Ltd, Western Asset Management Company Pty Ltd, and Western Asset 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 Western Asset company is a wholly owned subsidiary of Legg Mason, Inc. ( Legg Mason ) but operates autonomously, and Western Asset, as a firm, is held out to the public as a separate entity. Western Asset Management Company was founded in The Firm is comprised of several entities as a result of various historical acquisitions made by Western Asset 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 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 composites are all actual, fee-paying and performance fee-paying, fully discretionary accounts managed by the Firm for at least one full month. Investment results shown are for taxable and taxexempt 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 nonrecoverable 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 commingled funds in the Composite are calculated daily using net asset value (NAV). 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 assets 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 market index. The market index 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 market index presented was obtained from third party sources deemed reliable but not guaranteed for accuracy or completeness. Benchmark returns and benchmark 3-yr 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. Three-year annualized ex-post standard deviation measures prior to 211 are not covered by the report of independent accountants. Past investment results are not indicative of future investment results. Western Asset s list of composite descriptions is available upon request. Please contact Veronica A. Amici at or ramici@westernasset.com. All returns for strategies with inception prior to January 1, 23 are available upon request. 36

37 IMPORTANT INFORMATION The Legg Mason Western Asset Global Multi Strategy Fund is a sub-fund ("fund") 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 (the Central Bank ). Before investing investors should read in their entirety LMGF plc s application form and a 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 Investment Servicing (International) Limited, at the same address or from 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 the Company's prospectus (the Prospectus ). This material is not necessarily a complete summary and is not intended, for example, as a complete analysis. The information and data in this material (that may include without limitation research, forecasts, figures, opinions, statements, trends, investment techniques and strategies) has been prepared from sources believed reliable but is not guaranteed in any way by Legg Mason Investments (Europe) Limited nor any Legg Mason, Inc. company or affiliate (together Legg Mason ). No representation is made that the information or data is correct as of any time subsequent to its date. Further there is no guarantee or assurance that funds will achieve their investment objectives. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or needs of investors. 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. 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. Derivatives: Investment in derivatives 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. Annual management charge from capital: The fund s annual management charge is taken from its capital (rather than income). This may adversely affect the Fund s overall growth. Hedging: The fund may use derivatives to reduce the risk of movements in exchange rates between the currency of the investments held by the fund and base currency of the fund itself (hedging). However, hedging transactions can also expose the fund to additional risks, such as the risk that the counterparty to the transaction may not be able to make its payments, which may result in loss to the fund. This material is not intended for any person or use that would be contrary to local law or regulation. Legg Mason is not responsible and takes no liability for the onward transmission of this material.this material does not constitute an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not lawful or in which the person making such offer or solicitation is not qualified to do so or to anyone to whom it is unlawful to make such offer or solicitation. Issued and approved by Legg Mason Investments (Europe) Limited, registered office 21 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No Authorised and regulated by the UK Financial Conduct Authority. 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. June 214 P71 37