The $2bn Legg Mason Brandywine Global Fixed Income and $250m Legg Mason Brandywine Global Opportunistic Fixed Income funds have taken a more defensive tilt on the belief that 2013 could be ”a year of transition” for markets.
Brian Hess, a manager on the portfolios, says the funds have been shortening duration, trimming back exposure to treasuries or gilts and moving more defensive by exiting developed markets where the chance for interest rates to rise was most severe.
Hess explains that these changes were made due to a number of factors, such as the Federal Reserve’s less aggressive stance towards quantitative easing, stability in China and less negative news from Europe.
The manager says: “By and large, that has played out well. We have also been building dollars into the portfolio as part of the idea the Fed would be getting less aggressive in terms of monetary easing.
“With US growth outperforming much of the developed world, we thought that would provide a tailwind to US dollar performance, particularly against the Japanese yen where domestic policy considerations are aimed at currency weakening.”
Geographically, Hess is viewing new markets where there has been a weakening of sovereigns or currencies.
Markets where the funds are eyeing opportunities include Indonesia and Thailand, where the they have not had exposure since 2011 and 2005 respectively.
Hess adds: “The Philippine peso is on our radar, as are the Colombian peso and Peruvian sol. These are five ideas where there may be opportunities in the second half of the year at more favourable pricing after recent volatility.
“Perhaps what we saw in May was a knee-jerk overreaction to concerns about a big reversal of liquidity.”