navigating global bond markets, the benefits of...
TRANSCRIPT
NAVIGATING GLOBAL BOND MARKETS,
THE BENEFITS OF FLEXIBILITY
Michael Zelouf, CFA
9 March 2016
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.
AGENDA
2016 macro outlook
How have markets reacted?
Navigating global bond markets
Appendix
1
MACRO REVIEW: THE START OF 2016
Global growth and inflation have moved lower, downside risks persist
Accommodative monetary policy remains crucial for ongoing global recovery
2
Source: Western Asset, as at 18 February 2016. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situations or
needs of investors.
FEARS
Credit markets priced beyond recession
Systemic risk premium for banks globally
Global recession – China, oil, banks
OPPORTUNITIES
No systemic crisis
Slow global growth
Moderate US growth
OFFICIAL GROWTH FORECASTS:
HOW LIKELY IS A GLOBAL RECESSION ?
Source: IMF, IBRD and OECD
3
1.9
4.0
3.1
1.6
4.3
2.4
3.0
0
1
2
3
4
5
6
Advanced Emerging World
2.1
4.3
3.4
2.1
4.8
2.9 3.0
0
1
2
3
4
5
6
Advanced Emerging World
IMF (Jan 2016)
World Bank (Jan 2016)
OECD (Feb 2016)
2.1
4.7
3.6
2.1
5.3
3.1 3.3
0
1
2
3
4
5
6
Advanced Emerging World
2015 2016 2017
60% of the global economy is likely to grow by at least 1% in 2016
WORLD GDP AND REAL OIL PRICE
4
-60
-40
-20
0
20
40
60-1
0
1
2
3
4
5
6
7
1990 1995 2000 2005 2010 2015
PercentPerc
ent
World GDP World Oil Price (RHS)
Source: Bloomberg. As of 31 Dec 15
Low oil prices boost real incomes in energy consuming economies
US ECONOMY :
HIRING AND INCOME GROWTH REMAIN STRONG
-1000
-800
-600
-400
-200
0
200
400
600
1985 1990 1995 2000 2005 2010 2015
Tho
usan
ds
Non-Farm Payroll Job Growth, 3-Month Average
Source: Bureau of Labor Statistics. As of 31 Jan 16
-8
-6
-4
-2
0
2
4
6
8
10
12
1985 1990 1995 2000 2005 2010 2015Y
ear-
over
-Yea
r G
row
th (
%)
Income Consumption
Source: Bureau of Labor Statistics. As of 31 Jan 16
5
CHINA ECONOMY:
LOWER BUT MORE BALANCED GROWTH
Growth is becoming more service based than manufacturing driven
Source: NBS, as at 31 December 2015
6
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016
Corn
150
200
250
300
350
400
2010 2011 2012 2013 2014 2015 2016
Wheat
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015 2016
Sugar
120
160
200
240
280
320
2010 2011 2012 2013 2014 2015 2016
Coffee
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016
Oil
50
70
90
110
130
150
2010 2011 2012 2013 2014 2015 2016
Coal
50
100
150
200
250
300
2010 2011 2012 2013 2014 2015 2016
Rubber
40
80
120
160
200
240
2010 2011 2012 2013 2014 2015 2016
Cotton
5,000
6,000
7,000
8,000
9,000
10,000
2010 2011 2012 2013 2014 2015 2016
Copper
25
50
75
100
125
150
175
200
2010 2011 2012 2013 2014 2015 2016
Iron Ore
1,000
1,200
1,400
1,600
1,800
2010 2011 2012 2013 2014 2015 2016
Gold
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2010 2011 2012 2013 2014 2015 2016
Aluminum
COMMODITIES: ARE BROAD DECLINES SIGNALLING
A WEAKER GLOBAL ECONOMY ?
Commodity units priced in US Dollars. Source: Indexmundi.com. As of 31 Dec 15
Price Trends of Key Commodities in US Dollars
7
ARE FINANCIAL CONDITIONS SIGNALLING A
SYSTEMIC CRISIS?
Source: Bloomberg, as at 31 January 2016
-1
-0.5
0
0.5
1
1.5
2
2.5
3
98
99
100
101
102
103
104
105
Jan 07 Oct 07 Jul 08 Apr 09 Jan 10 Oct 10 Jul 11 Apr 12 Jan 13 Oct 13 Jul 14 Apr 15 Jan 16
Financial Conditions Indicators ( GS vs. Chicago Fed)
GSERFCI NFCINDX
8
2000 - 07 2007 - 14¹
Average 7.3 5.3
8.5 2.8
5.7 5.9
5.8 9.3
9.4 2.9
Compound Annual Growth Rate (%)
20 37 452233
5826
38
56
19
33
40
87
141
199
0
50
100
150
200
250
Q4 00 Q4 07 Q4 14¹
UD
S T
rillio
n
Household
Corporate
Government
Financial
¹Q214 data for advanced economcies and China; Q413 data for other developing econocmies Note: Data may not sum due to roundingSource: Mckinsey Global Institute. 28 Feb 15
DEBT ACCUMULATION MAKES THE GLOBAL
ECONOMY VULNERABLE TO DEFLATION
Global Government, household and non-financial corporate debt
Total Debt as
% of GDP 246 269 286
9
United States (left)
Brazil, Russia, India & China (right)
60
80
100
120
140
160
100
125
150
175
200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Percent of G
DPP
erce
nt o
f GD
P
Private Credit
Source: BIS. As of 31 Mar 15
HOW HAVE THE MARKETS REACTED?
10
IT’S ALL ABOUT THE OIL PRICE
Source: Bloomberg, As of 12th Feb 2016.
-100
-90
-80
-70
-60
-50
-40
-30
-20
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15
Pir
ce
(in
ve
rted
)
OA
S
Credit Is Tracking Oil
Barclays US Agg Credit WTI Crude Oil
11
FEAR OF RECESSIONS PAST
With the exception of 2008 current spreads on high-grade bonds are higher than all of the past five contractions
Source: Citigroup, as at 12 February 2016. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.
Past performance is not an indicator of future results and may not be repeated.
12
211
193
180
125
77
100
Current Dec '07 Mar '01 Jul '90 Jul '81 Jan '80
0
50
100
150
200
250
Past Recessions
Basis
Po
ints
Investment Grade Spread to Treasuries Index: Citi Broad Investment-Grade Corporate Index
INVESTMENT-GRADE CREDIT*
EXCESS RETURNS
Source: Barclays, as at 12 February 2016. *Year-to-date ending 12 February 2016. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales
charges. Past performance is not an indicator of future results and may not be repeated.
13
EXCESS
YEAR EVENT RETURN (bps)
1998 Russian default / emerging markets crisis -238
2000 NASDAQ collapse / recession -463
2002 Recession / WorldCom -187
2007 Housing / structured credit collapse -464
2011 Euro crisis -322
2015 China / commodity collapse -169
February 2016* Global recession fear? -323 *Index: Barclays US Credit Index
LONG-TERM US BBB CREDIT SPREADS
PRICED FOR RECESSION
14
0
200
400
600
800
1925 1935 1945 1955 1965 1975 1985 1995 2005 2015
Ba
sis
po
ints
Long-Term Spread History
US Recession BBBs (to Tsy)
Source: Morgan Stanley Research, Moody's .
0
3
6
9
12
15
1929 1939 1949 1959 1969 1979 1989 1999 2009
Per
cent
Default Rates, Investment-Grade Corporates
5-Year Cumulative Rate of Historical Defaults,Investment-Grade Corporates
5-Year Default Rate Based on 30% Recovery Implied by Market Pricing 31 Jan 16 (11.33%¹)
Source: Moody's, Barclays, Bloomberg. As of 31 Jan 16¹Calculation assumes 25 bps liquidity premium
Past performance is no guarantee of future results.
INVESTMENT-GRADE CREDIT SPREADS
Credit Spreads Wider: Large Dispersion Between Winners and Losers
Past performance is no guarantee of future results. 15
YTD Excess
Returns
Investment-Grade Credit Spreads
US Credit -193 bps
Cable Satellite -252 bps
Banking -140 bps
Oil Field Services -1092 bps
Metals & Mining -649 bps
Energy -676 bps
Airlines -140 bps
Tobacco -139 bps
T1 Banks -339 bps
50
100
150
200
250
300
350
400
450
500
550
600
Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16
OA
S (
bps)
Source: Barclays. As of 31 Jan 16
US HIGH-YIELD SPREADS APPEAR TO PROVIDE A
SIGNIFICANT CUSHION VS. EXPECTED DEFAULT RATES
16
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
0
2
4
6
8
10
12
14
16
18
20
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Default R
ate (%)
OA
S (
bps)
US High-Yield Default Rates vs. Spreads
Moody's DefaultRate¹ (right)
Moody's US Trailing 12-MonthDefault Rate Forecast² (right)
Barclays U.S. High-YieldIndex Spread (left)
Source: Moody's, Barclays, Western Asset. As of 31 Jan 16¹As of 31 Dec 15²Moody's US Trailing 12-Month Issuer-Weighted Spec-Grade Default Rate Forecast ending 31 Dec 16
Past performance is no guarantee of future results.
EMERGING MARKETS: ATTRACTIVE VALUATIONS
Past performance is not a reliable indicator of future results.
Emerging Markets (EMs)
have been challenged by
China slowdown, weak
commodity prices and
Federal Reserve policy
uncertainty
Valuation gap to
developed market bond
yields is nearing global
financial crisis levels.
17
300
350
400
450
500
550
600
2007 2008 2009 2010 2011 2012 2013 2014 2015
Bas
is P
oint
s
Spread Between Local Currency EM and DM Sovereign Yields
Source: J.P. Morgan. As of 30 Sep 15
HOW DO YOU NAVIGATE THIS UNCERTAINTY?
18
HOW TO NAVIGATE DIFFICULT BOND MARKETS:
UNCONSTRAINED FIXED INCOME
19
Attractive returns
Liquidity and capital protection
Diversification from declines in equity and other “risk”
assets
Low nominal and real rates
Rise in inflation and increase in volatility
Correlations between bonds and equities becoming less
predictable
Invest only in markets offering fundamental value
Flexibility to short duration and sector exposure
Active management & flexible guidelines provide potential
for uncorrelated alpha
Needs Challenges Solutions
January 2000:
Launch of Western Asset’s first
unconstrained strategy
March 2012:
Cayman domiciled fund is
launched
August 2013:
US domiciled fund is launched
November 2013:
Irish domiciled Legg Mason
Western Asset Macro
Opportunities Bond Fund is launched
31 December 2015:
Total Strategies combined AUM
of $7.8 billion
WESTERN ASSET
A HISTORY OF UNCONSTRAINED BOND INVESTING
• Utilises all of Western’s global capabilities – WAM AUM: $443.7 billion (as at 31 December 2015)
• Headed by CIO Ken Leech
• A Macro orientated all weather approach to bond investing.
Source: Legg Mason, as at 31 December 2015.
20
1 January 2006
Launch of Western Asset’s first Global total return investment grade
bond segregated mandate
December 2015:
Irish domiciled Legg Mason
Western Asset Global Total
Return Investment Grade Bond Fund
launched
TWO GLOBAL UNCONSTRAINED FIXED INCOME
PROPOSITIONS How the strategies differ:
Source: Legg Mason, as at 31 December 2015.
21
Legg Mason Western Macro Opportunities Bond Fund Legg Mason Western Asset Global Total Return
Investment-Grade Bond Fund
Sources of alpha Long term value investing across global fixed income
combined with active management of duration, yield curve
and volatility
Long term value investing in global investment grade
sectors combined with active management of duration,
yield curve and volatility
Allocation limits
Currencies Up to 50% in non-USD currency exposure; May short
currencies
Up to +/-25% aggregate currency exposure other than
the US dollar; May short currencies
Emerging Markets Max 50%
Below Investment Grade Max 50% None (100% IG at purchase)
Duration range Duration range of - 5 years to +10 years Duration range of - 3 years to +8 years
Volatility range Max 10% annualised ex-post volatility limit Max 6% volatility limit
Derivatives Active use of derivatives for alpha and hedging
Leverage No financial leverage
Fund Structure Dublin UCITS Fund
Inception date 29 November 2013 31 December 2015
INVESTMENT PHILOSOPHY
DRIVEN BY FUNDAMENTAL VALUE
22
Long-term
fundamental value
Multiple diversified
strategies
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.
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.
INVESTMENT PROCESS
BENCHMARK-AGNOSTIC FLEXIBLE STRATEGY
Allocations between long-term strategic themes, middle-term opportunities and very short-term tactical positions depend on the current market and the manager’s conviction.
23
Strategy that is Opportunistic and Tactical
Initiate positions in undervalued credit with
a long-term perspective to realise value
Provide stability during periods of stress
Short-Term Tactical Medium-term Opportunities Long-term Strategies
Positioning Provide stability in volatile markets/
Enhance returns when views are correct
Protect core/long-term portfolio or take
advantage of market dislocations Best ideas/ high conviction
Types of Trades Derivatives rather than cash bonds Derivatives rather than cash bonds Cash bonds / Derivatives
Holding Period Intraday to weeks Multiple weeks Beyond 6 months
Aim is to add value when views are
correct and mitigate volatility during
times of extreme stress
FLEXIBILITY: HISTORICAL RANGES OF THE MACRO
OPPORTUNITIES STRATEGY*
Source: Western Asset as at 31 January 2016. The information provided is supplemental to the Macro Opportunities Composite.
*Note: Exposure and attribution data up to 30 November 2013 pertains to the Representative Account, after which the data pertains to the Legg Mason Western Asset Macro Opportunities Bond Fund.
**Emerging Markets exposure is denominated in both USD and local currency. Local currency exposure is reflected in both the EM and FX sectors. ***Represents gross currency exposure.
There are differences between the Representative Account and the Legg Mason Western Asset Macro Opportunities Bond Fund, including differences in the number of holdings, 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 above Representative
Account is, therefore, not indicative of the future performance of the Legg Mason Western Asset Macro Opportunities Bond Fund. Inception date: 21 March 2012. The Western Asset Macro
Opportunities Strategy is not measured against a benchmark. There is no benchmark available which appropriately reflects the strategy. Past performance is not indicative of future results. The
information provided is supplemental to the Macro Opportunities Composite. Please see the composite disclosure in the appendix.
24
9.9
-4.9
-6
-4
-2
0
2
4
6
8
10
12
Effective Duration (years)
Effective DurationMax Min
Market Value USD 7.2 billion
Effective Duration 3.70
Macro Opportunities Strategy
63.5%
22.9%17.6%
38.8%
49.9%
18.0%
8.5%6.5%
-30.4%
-1.7% 0.0%
14.4%
0.0%0.0%
-40%
-20%
0%
20%
40%
60%
80%
InvestmentGradeCredit
High YieldCredit
PeripheralEurope
EmergingMarketsDebt**
FX*** MortgageBacked
Securities
Municipals
Credit/Emerging Market Currencies
Max Min
FLEXIBILITY MACRO OPPORTUNITIES STRATEGY
EXPOSURES*: OPPORTUNISTIC AND TACTICAL
Source: Western Asset as at 31 January 2016. The information provided is supplemental to the Macro Opportunities Composite.
*Note: Exposure and attribution data up to 30 November 2013 pertains to the Representative Account, after which the data pertains to the Legg Mason Western Asset Macro Opportunities Bond Fund.
**Peripheral European and Emerging Markets exposures are denominated in both USD and local currency. Local currency exposure is reflected in FX as well as in the Peripheral Europe and EMD
sectors. ***Represents gross currency exposure.
There are differences between the Representative Account and the Legg Mason Western Asset Macro Opportunities Bond Fund, including differences in the number of holdings, 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 above Representative
Account is, therefore, not indicative of the future performance of the Legg Mason Western Asset Macro Opportunities Bond Fund. Inception date: 21 March 2012. The Western Asset Macro
Opportunities Strategy is not measured against a benchmark. There is no benchmark available which appropriately reflects the strategy. Past performance is not indicative of future results. The
information provided is supplemental to the Macro Opportunities Composite. Please see the composite disclosure in the appendix.
25
-5
0
5
10
15
20
-50%
0%
50%
100%
150%
200%
Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15
Effe
civ
e D
ura
tion
(Ye
ars
)N
oti
on
al M
ark
et E
xp
osu
re
Investment Grade Credit High Yield Credit Peripheral Europe Emerging Markets Debt**
FX*** Mortgage Backed Securities Municipals Eff. Duration (years)
GLOBAL TOTAL RETURN INVESTMENT GRADE BOND
REPRESENTATIVE ACCOUNT
Source: Western Asset, as at 31 December 2015. There may be differences between the representative account of the strategy composite and the Legg Mason Western Asset Global Total Return
Investment Grade Bond 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 representative account may not be indicative of the Legg Mason Western Asset Global Total Return Investment Grade Bond Fund
over the same period. For more information on the strategy composite see the composite disclosure in the appendix.
26
-4
-2
0
2
4
6
8
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Dur
atio
n C
ontr
ibut
ion
(yea
rs)
Governments/Agencies Inflation-Linked US Agency MBS
Investment Grade Credit Local Emerging Markets USD Emerging Markets
Emerging Market Credit Total Portfolio Duration
As of 31 Dec 15Global Total Return Representative Account
Sector by Duration Contribution
LOW CORRELATION TO EQUITY AND TRADITIONAL
FIXED INCOME ASSET CLASSES
27
Macro Opportunities Strategy Correlation
S&P 500 JPM EMBI Global Barclays Global
Aggregate BofAML Glbl HY BB-B
Barclays US Corp
Investment Grade
Macro Opportunities
Strategy 0.25 0.44 0.20 0.40 0.39
Can be a good equity diversifier – strategy does not substitute interest rate risk for equity-like credit risk
Can be a good fixed income diversifier – low correlation can help lower the risk of a fixed income portfolio
Low correlation with high yield – Fund seeks performance without increasing credit risk
Source: Legg Mason/Morningstar Direct. As of 31 December 2015. Since inception of Macro Opportunities strategy. The data has been used to demonstrate the longer term track record of the
investment manager. There are differences between the above composite and the Legg Mason Western Asset Macro Opportunities Bond Fund, including differences in the number of holdings, 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 above
composite is, therefore, not indicative of the future performance of the Legg Mason Western Asset Macro Opportunities Bond Fund. The Western Asset Macro Opportunities Strategy is not measured
against a benchmark. There is no benchmark available which appropriately reflects the strategy. Past performance is not indicative of future results. The information provided is supplemental to
the Macro Opportunities Composite. Please see the composite disclosure in the appendix. Strategy Inception Date: 21 March 2012. ©2015 Morningstar. All Rights Reserved. Past Performance is
no guide to future results. Please refer to the section entitled “Important Information” for additional details.
CONCLUSION
Credit spreads are pricing in excessively pessimistic outcomes for macroeconomic
fundamentals. We think the odds of a global recession are very low.
Low interest rates and positive growth present opportunities within credit markets but
careful sector and issue selection are important
Focus on value and flexibility to deal with short term volatility is key to navigating
uncertain markets
The Legg Mason Western Asset Macro Opportunities Bond Fund and the Legg Mason
Western Asset Global Total Return Investment Grade Bond Fund offer two compelling
solutions
28
APPENDIX
29
WESTERN ASSET MANAGEMENT
GLOBAL REACH
Western Asset - fixed income specialists:
Wholly owned subsidiary of Legg Mason, Inc.
One of the world’s leading global fixed income
managers with $433.7bn 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
Source: Western Asset, as at 31 December 2015.
* Includes Derivatives, Economics, Equities, Multi-markets, and Management.
30
Global research driven investment teams
Sector Global
professionals
Mortgage Backed 10
Emerging Markets 20
Governments 27
Investment Grade 19
High Yield 20
Short Duration/Currencies 11
Municipals/Insurance 11
Other* 8
Portfolio Operations 47
Product 18
Offices in Pasadena, New York, London, Melbourne, Tokyo,
Singapore, Hong Kong, Dubai and Sao Paulo
A global investment management firm committed to understanding the needs of each client,
identifying potential investment solutions and aiming to deliver long-term investment solutions
WESTERN ASSET
GLOBAL BREADTH & LOCAL DEPTH
Source: Western Asset, as at 31 December 2015. Assets under management in USD (billions).
*Splits time between Hong Kong and Singapore offices.
Total AUM: $433.7 billion
8 Countries (9 Offices)
Total Staff: 821
Investment Professionals: 127
Singapore Managed: $4.0
Serviced: $16.9
Investment Professionals: 5
Total Staff: 22
New York Managed: $152.2
Serviced: $117.0
Investment Professionals: 22
Total Staff: 86
London Managed: $38.0
Serviced: $26.7
Investment Professionals: 16
Total Staff: 64
Tokyo Managed: $8.5
Serviced: $41.2
Investment
Professionals: 4
Total Staff: 24
São Paulo Managed: $9.3
Serviced: $8.7
Investment Professionals: 18
Total Staff: 67
Pasadena Managed: $206.7
Serviced: $172.5
Investment Professionals: 57
Total Staff: 543
Hong Kong Total Staff: 1*
Dubai Serviced: $48.7
Total Staff: 1
Melbourne Managed: $15.0
Serviced: $2.0
Investment Professionals: 5
Total Staff: 14
31
LEGG MASON WESTERN ASSET MACRO
OPPORTUNITIES BOND FUND: A SEASONED TEAM
S. Kenneth Leech 38 Years’ Experience
Western Asset Management Company –
Chief Investment Officer, 1990-Present
Education
The Wharton School, University of
Pennsylvania, M.B.A., B.S., 1972-1976
Joseph A. Filicetti 29 Years’ Experience
Western Asset Management Company –
Product Manager, 2010-Present
Education
Columbia University, M.B.A.
Niagara University, B.A.
Source: Western Asset as at 31 December 2015.
32
Product Managers
Portfolio Managers
Michael B. Zelouf 30 Years’ Experience
Western Asset Management Company –
Director of EMEA Business, 1989 - Present
Education
Imperial College, London, B.Sc.
Chartered Financial Analyst
Prashant Chandran 16 Years’ Experience
Western Asset Management Company –
Portfolio Manager, 2007-Present
Education
University of Chicago, Graduate School of
Business, M.B.A.
University of Toledo, M.Sc.
Indian Institute of Technology, Bombay, B.Sc.
Chartered Financial Analyst
LEGG MASON WESTERN ASSET GLOBAL TOTAL
RETURN: A SEASONED TEAM
S. Kenneth Leech 38 Years’ Experience
Western Asset Management Company –
Chief Investment Officer, 1990-Present
Education
The Wharton School, University of
Pennsylvania, M.B.A., B.S., 1972-1976
Source: Western Asset as at 31 December 2015.
33
Gordon Brown 21 Years’ Experience
Western Asset Management Company –
Co-Head of Global Portfolios, 2011-Present
Education
University of Stirling, M.Sc. Investment Analysis
University of Strathclyde, M.Sc. Business
Economics
University of Aberdeen, M.A. Economic Science
UK Society of Investment Professionals,
Associate Member
Andrew Cormack 12 Years’ Experience
Western Asset Management Company –
Portfolio Manager, 2004-Present
Education
London School of Economics, B.Sc.
(Honors)
Product Manager:
Catherine Matthews 28 Years’ Experience
Western Asset Management Company –
Product Specialist, 1987-Present
Education
London Business School
Theme
Global Growth/Macro Strategies
Perspective
Global central bank monetary stimulus has
supported moderate global economic recovery but
process is uneven
GDP growth in US is slow, but steady and improving
Inflation remains subdued. Need 3.0% or more GDP
growth for extended period of time to reduce slack in
economy
Expect continuation of very accommodative
monetary environment. Timing of next rate move
contingent on inflation trends and easing in financial
conditions. Estimates for GDP are approx. 1.5% to
2.0%
Positioning
Interest rate duration: generally moderate duration
exposure at current levels supports view that growth
will remain slow but positive with very slow rate
normalization
Eurodollar / front-end rates: short March,
December 2016 contracts, long June 2016 contracts
Curve exposure: short in intermediate rates and
long in long-dated rates, with a flattening bias, and
paying on 7-year swaps
MAJOR THEMES
31 JANUARY 2016
34
Theme
Emerging Market (EM) Exposure
Perspective
EM fundamentals continue to face headwinds
of slowing growth, inflation and current
account deficits; however, valuations remain
attractive relative to developed markets
Much of EM debt is denominated in local
currency putting less pressure on issuers
Believe lower energy prices should be good
for many emerging economies. Oil is likely to
stabilise as supply headwinds abate and
demand recovers later in year
China facing cyclical and structural growth
challenges but policymakers will continue to
ease monetary and fiscal policy to manage
growth and economy’s rebalancing away from
exports and investment
Positioning
Local debt and currency longs in Mexico, and
India. Smaller positions in Brazil, Russia and
Poland and China local debt. Short currency
in Chinese, South Korean and Colombian
currencies
FX-only short in Singapore dollars, Turkish
lira and Malaysian ringgit
Hold sovereign debt in Mexico, Brazil,
Colombia and Turkey and selected corporate
debt in Colombia and Brazil
Theme
Peripheral European Position
Perspective
European Central Bank (ECB) maintains
aggressive monetary policy to prevent
deflationary and systemic risks
ECB continues to provide liquidity to
Eurozone countries via asset purchases and
negative deposit rates. Draghi likely to further
ease policy in March to help reverse the
decline in inflation expectations.
Increased private sector borrowing indicates
improving growth prospects but structural
issues including a potential UK exit from the
EU and worries about Europe’s banks remain
a headwind to a robust recovery
Euro currency to weaken consistent with the
long-term direction of the ECB
Positioning
Long Italian sovereign and corporate debt in
the long-dated part of the curve
Opportunistically short German bund duration
Short the euro currency versus the US dollar
Source: These are the opinions of Western Asset as at 31 January 2016. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives,
financial situation or needs of individual investors. 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 investment or interest. There is no guarantee that forecasts or estimates will be correct.
LEGG MASON WESTERN ASSET
MACRO OPPORTUNITIES BOND FUND
Source: Western Asset, as at 31 January 2016.
*Yield to worst measures the lowest potential yield that can be achieved on a bond without the issuer’s defaulting. Yield to worst is based on the underlying portfolio and not on the dividends paid by
the fund, which may differ. Yields are not guaranteed and are subject to change. **Higher of WAM Average Quality. Nationally Recognized Statistical Rating Organization’s (NRSRO’s) assess the
likelihood of bond issuers defaulting on a bond’s coupon and principal payments. The weighted average credit quality by Western Asset Management assigns each security the higher rating from
three NRSRO’s (Standard & Poor’s, Moody’s Investor Services and Fitch Ratings, Ltd.). If only one NRSRO assigns a rating, that rating will be used. Securities that are not rated by all three NRSRO’s
are reflected as such. The lower the overall credit rating, the riskier the portfolio. The credit rating is expressed as a regular letter rating (from high to low quality): AAA, AA, A, BBB, BB, ...D.
*** US dollar share class.
35
Sector (%) Core Market Duration Contribution (years) Currency (%) ***
Statistics
Yield* 7.1 %
Effective Duration 3.7 years
Spread Duration 0.5 years
Average Rating** BBB+
CDS
10.7
0.8
1.0
3.8
13.8
13.9
0.6
7.1
8.3
2.7
4.5
0.9
3.2
22.8
5.5
2.3
Peripheral Europe
Municipal
Agency
US MBS/ABS
IG Financial
IG Industrial
IG Utility
US IG Credit CDS
HY Financial
HY Energy Industrial
HY Other Industrial
US High Yield CDS
Euro High Yield CDS
Local EM
USD EM
EM Corporate
-0.9
1.1
-1.3
-1.3
4.5
3.3
-1.5
-3.1
6 Month US
2 Year US
5 Year US
10 Year US
20 Year US
30 Year US
Japan Govt
German Bund
104.0
5.6
5.4
3.4
3.4
1.7
1.1
0.9
0.8
0.6
-0.6
-0.6
-0.7
-1.0
-3.0
-4.7
-7.7
-8.9
US Dollar
Canadian Dollar
Mexican Peso
Indian Rupee
Russian Ruble
Brazilian Real
Indonesian Rupiah
Polish Zloty
Norwegian Krone
Australian Dollar
Peruvian Sol
Turkish Lira new
Colombian Peso
Singapore Dollar
South Korean Won
Euro
Chinese Yuan
Japanese Yen
LEGG MASON WESTERN ASSET GLOBAL TOTAL
RETURN INVESTMENT GRADE BOND FUND
Source: Barclays, Western Asset, as at 31 January 2016.
*Yield to Worst. The lowest potential yield that can be received on a bond without the issuer actually defaulting.
**Higher of WAM Average Credit Quality. Credit Quality Breakdown: Nationally Recognised Statistical Rating Organisation’s (NRSROs) assess the likelihood of bond issuers defaulting on a bond’s
coupon and principal payments. The credit quality allocation by Western Asset Management assigns each security the higher rating from three NRSROs (Standard & Poor’s, Moody’s Investor
Services and Fitch Ratings, Ltd.). If only one NRSRO assigns a rating, that rating will be used. Securities that are not rated by all three NRSROs are reflected as such. The lower the overall credit
rating, the riskier the portfolio. The credit rating is expressed as a regular letter rating (from high to low quality): AAA, AA, A, BBB, BB, ...D.
36
Sector (%) Sector Duration Contribution (years) Currency (%)
Statistics
Yield* 1.7 %
Duration 2.5 years
Average Rating** A+
0
0
37
10
4
0
2
1
1
5
18
2
8
4
8
German Bund
UK Gilt
US Treasury
Italy Govt
Poland Govt
Australian Govt
Mexico Govt
Brazil Govt
India Govt
USD EM
US Corporate
Euro Corporate
UK Corporate
EM Corporate
Cash/Cash Equivalents
-1.4
-0.7
-0.6
0.5
0.3
0.2
0.2
0.2
0.1
0.5
2.1
0.1
0.7
0.3
0.0
German Bund
UK Gilt
US Treasury
Italy Govt
Poland Govt
Australian Govt
Mexico Govt
Brazil Govt
India Govt
USD EM
US Corporate
Euro Corporate
UK Corporate
EM Corporate
Cash/Cash Equivalents
14
4
1
1
1
1
-2
-3
-3
-5
-9
US Dollar
Polish Zloty
Mexican Peso
Brazilian Real
Indian Rupee
Canadian Dollar
Australian Dollar
South Korean Won
Japanese Yen
Chinese Renminbi
Euro
0.740.28
2.19 2.34
1.12 0.880.65
-0.20
0.90
0.110.42
0.10
-1.50
0.11
3.16
0.19 0.01 0.19
-1.76
1.41
-1.23-1.82
2.74
-0.19-0.85
-2.26
-3.28
-0.58
3.28 3.51
7.75
-4
-2
0
2
4
6
8
10
12
14
-4
-2
0
2
4
6
8
10
12
14
Dec-1
3
Jan-1
4
Fe
b-1
4
Ma
r-1
4
Apr-
14
Ma
y-1
4
Jun-1
4
Jul-1
4
Aug
-14
Sep
-14
Oct-
14
Nov-1
4
Dec-1
4
Jan-1
5
Fe
b-1
5
Ma
r-1
5
Apr-
15
Ma
y-1
5
Jun-1
5
Jul-1
5
Aug
-15
Sep
-15
Oct-
15
Nov-1
5
Dec-1
5
Jan-1
6
3 M
onth
s
1 Y
ea
r
2 Y
ea
r
S.I.
Ann.*
%%
Monthly Performance (LHS) Percentage Growth (RHS)
LEGG MASON WESTERN ASSET
MACRO OPPORTUNITIES BOND FUND
37
Source: Legg Mason, as at 31 January 2016. Performance is calculated NAV to NAV with gross income reinvested without initial charges but reflecting annual management fees, based in USD for class P
shares. Performance for periods under one year are not annualised. *Fund Inception Date: 29 November 2013. Past performance is not an indicator of future results and may not be repeated.
Class P Accumulation - Performance to 31 January 2016 in USD
MACRO OPPORTUNITIES COMPOSITE:
INVESTMENT RESULTS
Source: Western Asset Management. Returns as at 31 January 2016, in US Dollars. Performance is gross of investment advisory fees. The data has been used to demonstrate the longer term track
record of the investment manager. There are differences between the above composite and the Legg Mason Western Asset Macro Opportunities Bond Fund, including differences in the number of
holdings, 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 above composite is, therefore, not indicative of the future performance of the Legg Mason Western Asset Macro Opportunities Bond Fund. *The Western Asset Macro Opportunities Strategy is not
measured against a benchmark. There is no benchmark available which appropriately reflects the strategy. Past performance is not indicative of future results. 1The information provided is
supplemental to the Macro Opportunities Composite. Please see the composite disclosure in the appendix. 2Compounded Return. 3Strategy Inception Date: 21 March 2012.
38
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Ret2
2012 2.6%3 1.9% 7.0% 2.5% 2.3% 1.4% -1.4% 1.5% 1.4% -0.2% 20.3%
2013 1.4% 1.1% 1.3% 2.8% -1.4% -1.9% 0.8% -0.8% 1.8% 1.3% 0.0% 0.9% 7.5%
2014 0.9% 2.8% 2.4% 1.4% 1.2% 0.7% 0.1% 1.0% -0.1% 0.6% -0.1% -1.6% 9.7%
2015 -0.2% 3.2% 0.2% 0.5% 0.3% -1.8% 1.5% -1.2% -1.5% 2.7% -0.2% -0.5% 2.9%
2016 -1.9% -1.9%
Performance: Macro Opportunities Representative Account (Gross)*1
Performance to 31 January 2016 in USD
Source: Western Asset. Returns as at 31 January 2016, in US dollars. Returns for periods greater than one year are annualised. Effective 1 October 2014 fee schedule: 0.1% flat fee on all amounts;
the minimum separate account size is US$200 million. Composite performance is preliminary and subject to change.
-2.1
0.7
5.4
9.0
-2.2
-0.3
4.5
8.2
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
1 Month 1 Year 3 Years Since Inception1 April 2012Annualised
%
Macro Opportunities Composite (gross)* Macro Opportunities Composite (net)*
INVESTMENT RESULTS
GLOBAL TOTAL RETURN COMPOSITE
Source: Western Asset, as at 31 January 2016. There may be differences between the strategy composite and the Legg Mason Western Asset Global Total Return Investment Grade Bond 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 Legg Mason Western Asset Global Total Return Investment Grade Bond Fund. For more information on the
strategy composite see the composite disclosure in the appendix.
39
-0.3
2.3
4.3
5.4
-1
0
1
2
3
4
5
6
1 Year 3 Years 5 Years Since Inception01 Jan 06
Tot
al R
etur
n (%
)
Global Total Return Composite
Standard Deviation (%) 2.8 3.9 5.0 4.4
Sharpe Ratio -0.1 0.6 0.9 1.0
INVESTMENT RISK MANAGEMENT:
INVESTMENT RISK COMMUNICATION
Production processes used in portfolio construction
Single security analytics
Security master file – terms & conditions
Pricing
Portfolio risk analysis
Regular meetings (weekly or monthly) with portfolio management teams
Alignments (client risk tolerances, risk/reward) checked
Warning levels for departures from client risk tolerances discussed
Portfolio construction
Regular meetings between CEO, Director of Risk Management & Operations, and Chief Risk Officer
Weekly meetings between Chief Risk Officer and Head of Portfolio & Quantitative Analysis
Biweekly portfolio and strategy reviews
Monthly Market & Credit Risk Committee (“MCRC”)
Senior personnel
Chartered, minuted committee
Considers many types of risk, such as market, credit, counterparty, stress
Key strategies are analysed in concentrated “risk dashboards”
40
MACRO OPPORTUNITIES
SHARE CLASSES AVAILABLE
41
Fund Class Share Type Class
Currency
ISIN Annual
Management
Fee
Minimum
Initial
Investment
Minimum
Subsequent
Investment
Class A Acc. (Hedged) CHF IE00BJGZXZ76 1.50% p.a. (Class A) CHF 1,000 CHF 500
Class A Acc. (Hedged) EUR IE00BHBFD143 1.50% p.a. (Class A) EUR 1,000 EUR 500
Class A Distr. (A) EUR IE00BSBN6725 1.50% p.a. (Class A) EUR 1,000 EUR 500
Class A Distr. (S) (Hedged) EUR IE00BVZCMJ02 1.50% p.a. (Class A) EUR 1,000 EUR 500
Class A Acc. USD IE00BC9S3Z47 1.50% p.a. (Class A) USD 1,000 USD 500
Class A Distr. (M) Plus (e) USD IE00BPBG5G23 1.50% p.a. (Class A) USD 1,000 USD 500
Class X Acc. EUR IE00BHBFD705 1.00% p.a. (Class X) EUR 3,000,000 EUR 1,000,000
Class X Acc. (Hedged) EUR IE00BHBFD812 1.00% p.a. (Class X) EUR 3,000,000 EUR 1,000,000
Class X Distr. (A) (Hedged) EUR IE00BWZN1Z90 1.00% p.a. (Class X) EUR 3,000,000 EUR 1,000,000
Class X Acc. USD IE00BJVDNR83 1.00% p.a. (Class X) USD 3,000,000 USD 1,000,000
Class X Distr. (M) Plus (e) USD IE00BYYQZY00 1.00% p.a. (Class X) USD 3,000,000 USD 1,000,000
Class X Distr. (S) USD IE00BPYD8729 1.00% p.a. (Class X) USD 3,000,000 USD 1,000,000
Premier Class Acc. EUR IE00BHBFDC52 1.00% p.a. (Premier Class) EUR 30,000,000 EUR 5,000,000
Premier Class Acc. (Hedged) EUR IE00BHBX1D63 1.00% p.a. (Premier Class) EUR 30,000,000 EUR 5,000,000
Premier Class Acc. USD IE00BC9S3W16 1.00% p.a. (Premier Class) USD 30,000,000 USD 5,000,000
Source: Legg Mason, as at 19 February 2016.
GLOBAL TOTAL RETURN INVESTMENT GRADE
SHARE CLASSES AVAILABLE
Source: Legg Mason, as at 19 February 2016. 42
Fund Class Share Type Class
Currency
ISIN Annual
Management
Fee
Minimum
Initial
Investment
Minimum
Subsequent
Investment
Class A Acc. (Hedged) EUR IE00BZ3FP017 1.20% p.a. (Class A) EUR 1,000 EUR 500
Class A Distr. (A) EUR IE00BZ3FP892 1.20% p.a. (Class A) EUR 1,000 EUR 500
Class A Distr. (A) (Hedged) EUR IE00BZ3FPD44 1.20% p.a. (Class A) EUR 1,000 EUR 500
Class A Distr. (M) Plus (e) USD IE00BZ3FPT04 1.20% p.a. (Class A) USD 1,000 USD 500
Class X Distr. (A) EUR IE00BZ3FPW33 0.60% p.a. (Class X) EUR 3,000,000 EUR 1,000,000
Class X Distr. (A) (Hedged) EUR IE00BZ3FQ973 0.60% p.a. (Class X) EUR 3,000,000 EUR 1,000,000
Class X Distr. (M) Plus (e) USD IE00BZ3FQF33 0.60% p.a. (Class X) USD 3,000,000 USD 1,000,000
Premier Class Acc. (Hedged) EUR IE00BZ3FR278 0.60% p.a. (Premier Class) EUR 30,000,000 EUR 5,000,000
Premier Class Distr. (A) EUR IE00BZ3FR617 0.60% p.a. (Premier Class) EUR 30,000,000 EUR 5,000,000
Premier Class Distr. (A) (Hedged) EUR IE00BZ3FR831 0.60% p.a. (Premier Class) EUR 30,000,000 EUR 5,000,000
Premier Class Acc. USD IE00BZ3FRN81 0.60% p.a. (Premier Class) USD 30,000,000 USD 5,000,000
Premier Class Distr. (M) Plus (e) USD IE00BZ3FRV65 0.60% p.a. (Premier Class) USD 30,000,000 USD 5,000,000
COMPOSITE DISCLOSURE:
MACRO OPPORTUNITIES COMPOSITE
43
As at 31 December 2015
COMPOSITE DISCLOSURE:
OPPORTUNISTIC VALUE COMPOSITE
44
As at 31 December 2015
COMPOSITE DISCLOSURE
GLOBAL TOTAL RETURN COMPOSITE
45
As at 31 December 2015
COMPOSITE DISCLOSURE
31 DECEMBER 2015
46
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 does not ensure the accuracy of any specific composite
presentation.
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 1971.
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 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. Investment 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 commingled funds in the Composite
are calculated daily using net value (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.
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.
Western Asset’s list of composite descriptions is available upon request. Please contact Jan
Pieterse at 626-844-9977 or [email protected]. All returns for strategies with
inception prior to January 1, 2005 are available upon request.
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, 2014. The verification report is available upon request.
IMPORTANT INFORMATION This 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").
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 (the "Prospectus").
Risks: Legg Mason Western Asset Macro Opportunities Bond 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.
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.
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.
Interest rates: Changes in interest rates may negatively affect the value of the fund.
Derivatives: The Fund makes significant use of 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.
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.
Risks: Legg Mason Western Asset Global Total Return Investment Grade Bond Fund
Liquidity Risk: 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.
Derivatives Risk: 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.
Mortgage- and Asset-Backed Securities risk: 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.
Settlement Risk: The debt securities in which the fund invests may have an extended settlement period on redemptions so the fund will normally employ a 10 business day settlement on redemptions with a possible 20
business day settlement in exceptional circumstances.
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.
Credit Risk: The Fund is subject to credit risk (i.e., the risk that an issuer of securities will be unable to pay principal and interest when due, or that the value of a security will suffer because investors believe the issuer
is less able to pay). This is broadly gauged by the credit ratings of the securities in which a Fund invests. However, ratings are only the opinions of the agencies issuing them and are not absolute guarantees as to
quality.
Risk of Government Securities: Not all government securities are backed by the full faith and credit of the United States or other national government in the case of foreign government securities. Some are backed
only by the credit of the issuing agency or instrumentality. Accordingly, there is at least a chance of default on these US government securities, as well as on non-US government securities in which the Funds may
invest, which may subject a Fund to credit risk.
47
IMPORTANT INFORMATION 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 investment or interest. Opinions expressed are subject to
change without notice and do not take into account the particular investment objectives, financial situations or needs of investors.
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 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 www.leggmasonglobal.com.
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 201 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No. 1732037. 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.
March 2016 P1546
48