BOUNCE BACK ABILITY
Legg Mason Brandywine Global Fixed Income Fund
During the lengthy training period before race day, all marathon runners will experience bad sessions in the wind and the rain, with thoughts of “why am I doing this?”. The strong marathon runners will be able to bounce back from these bad sessions and become stronger, fitter and more motivated.
As mentioned previously, no fund or fund manager is immune from underperformance. The fund managers that have provided significant alpha over time have been able to bounce back from periods of underperformance and subsequently outperform.
1995 was when David Hoffmann and Stephen Smith first managed a Global Fixed Income mandate at Legg Mason Brandywine, and over this period they have experienced periods of underperformance and market turbulence. In 2008 the Legg Mason Brandywine Global Fixed Income Fund underperformed its Citi World Government Bond Index by 16.33% (-7.43% v 8.90%) due to the funds exposure to investment grade corporate bonds and mortgage backed securities, as risk assets came under significant pressure in the wake of the global financial crisis. However the team had the resilience to bounce back from this tough period by outperforming by 17.64%, 5.34%, 2.16% and 3.41% in 2009, 2010, 2011 and 2012 respectively. The rebound in the fund performance was driven by the fund’s local currency government bond allocations to US treasuries, Australia and New Zealand. The team also learnt from the mistakes they made in 2008, by changing the mandate in 2010 to an investment grade sovereign bond only fund, removing any corporate bond and mortgage backed securities.
*All Returns are in local currency terms, net of income reinvested.
KEEP THE FAITH
Schroder Tokyo
The mentally tough marathon runner would have learnt to trust that their body will know what to do when it’s race time , and have faith that their training plan has ensured they are able to complete the arduous task of a marathon. The mentally tough fund manager will also have trust in their team and faith in their process. Without this trust and faith, a fund manager may doubt every decision they make, causing poor decision-making, unnecessary trading and a few extra hairs may be found at the bottom of the plughole. Andrew Rose, fund manager of the Schroder Tokyo fund since April 2004 has consistently remained faithful to his process even when short-term performance has been poor. In 2005, he believed that the market had a very narrow focus and a sharp rally in reflation beneficiaries seemed hard to square with the economic developments that were taking place. Mr Rose had faith that his process was telling him that Japanese valuations seemed unrealistically high. This scepticism initially hurt the fund, as in 2005 when it returned 32.59% compared to the 41.88% from the TOPIX. However in the long run Mr Rose’s faith in his process has rewarded investors, with the fund outperforming its benchmark by 12.65% over the seven-year period from 31st December 2005 to 31st December 2012.
All returns unless stated are in GBP term net of income reinvested.
Source: FE Analytics and Square Mile
