Active management crucial for uncertain times in FI


Active management helped guide Legg Mason Western Asset Australian Bond A through challenging market conditions, which won the Fund Manager of the Year Award for Australian Fixed Income.

Anthony Kirkham, chief investment officer / head of Australian operations for Western Asset Management, said that although the fund underperformed the benchmark in March and April, mainly due to an overweight position in credit to companies, the strategy regained ground in May and June.

“The strategy quickly regained ground in May and June, with the portfolio positioned to take advantage of a potential contraction in spreads as well as to trade tactically around what we consider to be fork-linked yield markets,” said Kirkham said.

Kirkham said the overweighting in credit before the COVID-19 pandemic focused on short-term credit.

“This was initially affected by the liquidity drain that affected all markets, but once the market normalized it quickly reversed in most cases,” Kirkham said.

“At the same time, and during the dysfunction, we took the opportunity to look at credit in names that we felt had been unduly impacted relative to its fundamentals, particularly in the infrastructure and public services, and selectively within REITS. [real estate investment trusts].

“It has also contributed significantly to our outperformance in recent months.”

David Ashton, lead portfolio manager of the Macquarie Core Australian Fixed Interest Fund, said March was an unprecedented time for financial markets, with liquidity issues affecting even the highest quality government bond markets.

“Credit strategies have also been extremely contested with dramatic widening of spreads in very low liquidity,” said Ashton.

“As a result, many strategies that were too reliant on duration calls or credit beta to generate excess returns suffered significant underperformance. “

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