Brandywine Global Sees Growing Prospects in Global Credit for Flexible Investors

PHILADELPHIA, Oct. 9, 2014 /PRNewswire/ -- In a recent white paper, Brandywine Global, a Legg Mason affiliate, discussed the choices facing global fixed income investors in today's low interest environment—even as rates may be poised to rise, but slowly.

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"From a credit perspective, global flexibility is critical today in today's low interest-rate environment," Brandywine Global Portfolio Manager Gary Herbert said. Mr. Herbert explained that global credit investing is imperative today because "U.S. credit spreads are very tight compared to history and government bond yields are at or below fair value," Mr. Herbert said.

He discussed his firm's outlook on the U.S. economy and how it impacts global credit allocation decisions. "We believe the U.S. economy is more likely to surprise on the upside than the downside. With credit spreads in the U.S. already tight and U.S. interest rates potentially moving higher, U.S. credit may offer investors more risk than opportunity."

Fortunately for investors, global opportunities are growing and attractive value is available outside the U.S. today. "U.S. companies have a long history of sourcing a significant amount of credit directly from capital markets, but that isn't the case in Europe and Asia, where companies historically have sourced credit primarily through banking relationships."

"The European sovereign debt crisis accelerated the process of European disintermediation — companies seeking capital directly from markets rather than from banks — while Asian companies are moving quickly in that direction as well."

The ground in this area is fertile, in Brandywine Global's view: "Investors not seeking credit exposure globally are missing the opportunity to access these first-time issuers in Europe and Asia at very attractive levels."

Tracy Chen, a portfolio manager focused on securitized credit at Brandywine Global, further described the opportunities in European credit. "The European housing cycle and broader credit cycle is lagged relative to the U.S., especially in the peripheral countries, like Spain," she explained. "For investors looking for value in credit markets and under the impression that the ECB can succeed in arresting European disinflation, peripheral European and European asset-backed securities (ABS) are a clear destination for value-seeking credit investors. European ABS were targeted for purchase recently by the ECB to reinvigorate credit markets and also have the benefit carrying floating-rate coupons, removing the risk of rising interest rates."

In this market Mr. Herbert and the Brandywine Global team recommend against relying upon traditional fixed income benchmarks.

"We take a benchmark-agnostic approach to global bond investment," he said.  "Active management is a critical piece of the puzzle for investors seeking global bond investment.  Benchmark weights allocate to countries and credits that dominate in issuance. That only brings investors toward risk and away from value."

To read the white paper, click on the following link: http://www.brandywineglobal.com/PDF/632366980.pdf

To learn more about Legg Mason's fixed income offerings, visit www.leggmason.com/fixedincome.

About Gary Herbert

Gerhardt (Gary) P. Herbert, CFA is a portfolio manager for Brandywine Global's fixed income group, with a concentration in high yield securities.  Mr. Herbert joined Brandywine Global in March 2010, bringing with him over 20 years of high yield experience. Previously he was a managing director, portfolio manager with Guggenheim Partners, LLC (2009-2010); a managing director, portfolio manager with Dreman Value Management, LLC (2007-2009); and an executive director, portfolio manager (1999-2007) and associate (1994-1998) with Morgan Stanley Investment Management.  Mr. Herbert earned a M.B.A. with honors from Columbia University, and a Bachelor's Degree from Villanova University.  He holds a Chartered Financial Analyst certification and is a member of the Philadelphia Scholars Program Investment Committee.

About Tracy Chen

As senior research analyst and portfolio manager for mortgage backed securities, Ms. Chen is responsible for conducting credit analysis on mortgage backed securities with special emphasis on Collateralized Mortgage Obligations (CMOs) and other structured products. She also monitors and analyzes the investment merits of global corporate debt issues. She joined Brandywine Global in 2008. Previously Ms. Chen was with UBS Investment Bank as director of the fixed income valuation group (2006-2008), GMAC Mortgage Group as a mortgage pricing analyst (2003-2006), Deloitte Consulting as a senior corporate strategy consultant (2001-2003), and J&A Securities Ltd. in Shenzhen, China as an international corporate finance associate (1995-1999). Ms. Chen earned an M.B.A. with a concentration in Finance from Kenan-Flagler Business School at the University of North Carolina, an M.A. in American Studies from Sichuan University in Chengdu, China, and a B.A. in English for Scientific Purposes from University of Electronic Science & Technology of China in Chengdu, China. She is a CFA® charterholder and earned the Chartered Alternative Investment Analyst (CAIA) charter in 2010. She was also published in the Spring 2007 edition of The Journal of Structured Finance.

About Brandywine Global

Founded in 1986, Brandywine Global Investment Management offers a broad array of fixed income, equity, and balanced strategies that invest across global markets.  Brandywine Global manages $58 billion in assets as of June 30, 2014. The firm is a wholly owned, independently operated subsidiary of Legg Mason, Inc. (NYSE: LM), and is headquartered in Philadelphia with office locations in San Francisco, Montreal, Toronto, Singapore, and London.

Brandywine Global's mission is to deliver superior investment solutions and performance for our clients. To attain this mission, we listen to our clients; aim to hire, support, and retain the industry's best people; encourage independent thinking by sponsoring an open marketplace for ideas; promote a culture of integrity and partnership; and find value throughout the world that others have not yet recognized.

For more information on investments sub-advised by Brandywine Global, call your financial adviser or visit www.leggmason.com.

About Legg Mason

Legg Mason, Inc. is a global asset management firm with assets under management of $711 billion as of August 31, 2014. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, MD and its common stock is listed on the New York Stock Exchange (symbol: LM).

Investments in fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. An increase in interest rates will reduce the value of fixed income securities. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Asset-backed, mortgage- backed or mortgage-related securities are subject to prepayment and extension risks. Risks of high-yield securities include greater price volatility, illiquidity and possibility of default.

Active management does not ensure gains or protect against market declines.

© 2014 Legg Mason Investor Services, LLC, member FINRA, SIPC. Brandywine Global Investment Management, LLC and Legg Mason Investor Services, LLC, are subsidiaries of Legg Mason, Inc.

¹Brandywine Global Investment Management (Canada), ULC; Brandywine Global Investment Management (Asia) Pte. Ltd.; Brandywine Global Investment Management (Europe) Limited is authorized and regulated by the Financial Conduct Authority (the "FCA"). (FRN 472774). Registered in England and Wales, No. 06324517

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