Western Asset CIO Advocates For Unconstrained Fixed Income Investing

Approach Allows Investors to Explicitly Tie Investment Objectives to Fixed Income Allocations

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Oct 23, 2014, 10:00 ET

NEW YORK, Oct. 23, 2014 /PRNewswire/ -- Ken Leech, the renowned Chief Investment Officer of Legg Mason affiliate Western Asset Management, believes fixed income investors should be as active in asking questions as asset managers must be in navigating unexpected swings in the global financial markets. He discussed his views at a recent investor conference hosted by Legg Mason.

"Unconstrained bond strategies are something investors should at least consider," Mr. Leech told an investor forum. "The point is there's no benchmark and no implied duration." With investors that means "you can talk about objectives. Investors should be very explicit."

In these markets, passive strategies may not deliver the returns investors seek: "Fixed income returns are 3 to 4 percent in a low-risk environment." Mr. Leech advised active portfolio management and unconstrained strategies through an experienced asset manager and responsible financial advisors.

"There is a drive from those who need a strategy that seeks to protect principle and generate income," Mr. Leech said. "How do I get yield? What's the program? 'Unconstrained' is kind of amorphous but it can allow investors to get income, protect principle and take advantage of interest rates." He noted that unconstrained strategies also can take advantage of emerging market opportunities and capture over-performance, benefits benchmarked strategies typically cannot offer.

Asked if recent market swings will slow the U.S. Federal Reserve's announced plans to raise interest rates, Mr. Leech did not hesitate: "Yes," suggesting any moves may wait two more cycles as a result.

When considering Europe, Mr. Leech sounded cautionary notes.

"Right now it's two steps forward, one step back in Europe," he said. "That has created anxiety, which moved to fear and even panic" when global markets experience sharp downturns. "U.S. fundamentals are pretty good. They're solid. Europe's are not. Growth is going to be very sluggish there."

The issues are not entirely economic in Mr. Leech's view: "There is a political logjam between Germany, Italy and France. Is anything going on that can effect global aggregate supply, or global aggregate demand? What I am most worried about is another policy error."

Still, he sees reason for optimism, even as markets may force ECB President Mario Draghi's hand.

"Draghi has surprised the market on the positive side," Mr. Leech said. "He is moving as quickly as he can under the circumstances. I wouldn't bet against him."

In the U.S. Mr. Leech observed that, "Inflation has been the dog that didn't bark in this recovery. Policy has to be proactive, accommodative and provide a tailwind."

He does have concerns: "The asymmetry of policy risk is important to understand. Volatility was very strained until six weeks ago but now it's back."

About Kenneth Leech

Mr. Leech joined Western Asset in 1990 to oversee the interest rate strategy and lead the long duration effort. In 1998, he was named CIO and spearheaded the performance and product development efforts that helped underpin Western Asset's global growth and success. After taking medical leave for much of 2008, Mr. Leech resumed investment duties in early 2009 and was named Chairman of the Global Strategy Committee. In this position, he directed the global portfolio management and the macro-strategy alternative efforts. In 2013 he became Co-CIO as part of the transition process, before fully resuming the CIO role in April 2014.

From 2002 to 2004, Mr. Leech served as a member of the U.S. Department of Treasury's Borrowing Committee. Prior to joining Western Asset, he spent much of his career focusing on proprietary trading, most recently with Greenwich Capital (1988–1990) and the First Boston Corporation (1980–1988). In his four years at the University of Pennsylvania's Wharton School, Mr. Leech obtained three degrees while graduating summa cum laude.

Mr. Leech and Western Asset were named US Fixed-Income Core and Core Plus Managers of the Year by Institutional Investor in 2013 and Morningstar's Fixed-Income Manager of the Year in 2004. Together Mr. Leech and the firm were also among four finalists for Morningstar's award in 2003 and 2006. In 2007, Mr. Leech was named to the Fixed-Income Analysts Society's (FIASI) Hall of Fame.

About Western Asset Management

Western Asset Management is one of the world's leading fixed-income managers with $455 billion in assets under management as of June 30, 2014. The firm is a wholly owned, independently operated subsidiary of Legg Mason, Inc. (NYSE: LM) From offices in Pasadena, Hong Kong, London, Melbourne, New York, São Paulo, Singapore, Tokyo and Dubai, the company provides investment services for a wide variety of global clients, across an equally wide variety of mandates.

All investments involve risk, including loss of principal. Past performance is no guarantee of future results.

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.

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SOURCE Legg Mason, Inc.