Page 33 - Investment Advisor July/August 2021

Fixed Income Manager of the Year
Brandywine Global Investment Management

Brandywine Global Opportunities Bond Fund

f the Federal Reserve sticks with its absolute returns for almost 70% of roll-
Inew framework to let inflation top ing three-year periods since its incep-
2% for some period of time as long as tion in late 2006.
it averages 2%, then the Brandywine Hoffman describes that manage-
Global Opportunities Bond Fund is “per- ment as buying money — or rather, buy-
fectly positioned,” says David Hoffman, ing the future return on money, which
chairman and head of fixed income consists of interest rate return and real
at Brandywine Global Investment yield spread return for corporate bonds
Management, which won the Envestnet/ and currencies that may appreciate or
Investment Advisor Manager of the Year depreciate. “We manage uncertainty,” he
award in the Fixed Income category, out says. “When there is a lot of uncertainty,
of a group of 115 peers. there’s almost always a lot of value.”
The fund was also perfectly positioned He adds that the fund tries to isolate
for the liquidity crunch in March 2020, David Hoffman three major risks in the bond market:
when the COVID-19 pandemic took hold duration, credit risk and currency risk,
in the U.S. and the Trump administra- Title: Chairman which it sometimes hedges, and looks
tion declared a national emergency. Years with firm: 26 for relatively high growth rates around
“We had no corporate bonds going Years in financial services: 46 the world. It starts with a top-down
into the disaster in March, [but] on analysis of the fundamentals of different
March 23 when the Fed came in, we countries, looking for value. “The higher
bought all the long-term corporate Investment/asset class focus: the real yield — the spread between
bonds we could,” Hoffman says. “We Fixed income yield and inflation — the more potential
want to buy corporates when they’re Firm name: Brandywine Global value there is. But you have to adjust for
cheap and sell them when they get a Investment Management the quality of a country,” Hoffman says.
little expensive. … Instead of playing The fund looks to identify pricing
defense, we played offense. We man- Firm headquarters: Philadelphia anomalies across countries, sectors and
aged our fear and went where the value Number of employees: 210 currencies, a minimum average port-
was, which is the secret of long-term AUM as March 31, 2021: $64 billion folio credit quality of A- or better and
bond management.” an effective duration of one to 10 years.
That “flexible and opportunistic” Its focus is to best its benchmark target
approach combined with investments in only “high-conviction by at least 2%, and it has achieved 3.5% for 25 years, he says.
ideas” led the fund to a 12.52% gain in 2020 compared with Turnover averages about 50% a year.
9.2% for its benchmark, according to Envestnet. It typically holds 10 to 30 positions, but that can rise if it
Those gains are even more impressive given that the fund holds more corporate and mortgage securities. The portfolio
was underperforming its benchmark by 11% in the first quarter now has about 30 positions, a duration of 2.3%, which is a mea-
of 2020. Needless to say, it far outperformed its benchmark sure of its sensitivity to interest rate changes, and far below
and peers in the remaining three quarters. the 8.5% of the FTSE World Government Bond Index and the
Envestnet credits the firm’s “deep and experienced team almost 10% duration of the fund in mid-2020, Hoffman says.
that has been implementing the same investment process over At the end of March 2021, nearly 60% of the portfolio was in
a number of decades,” which has led to “exemplary” long-term U.S. securities, including cash, but it also owned fixed-income
performance on an absolute and risk-adjusted basis. They add securities from Mexico, South Africa, Malaysia, Colombia,
that “the fund’s elevated risk profile can lead [to] bouts of sig- Brazil, Indonesia, Australia, Canada and Poland.
nificant short-term underperformance, with 2020 being a per- Hoffman, who manages the fund with four other portfolio
fect example.” Those differences “underscore the importance managers, says in addition to the normal drivers of value he is
of a long-term investment horizon with this strategy.” watching Federal Reserve policy, inflation data, the U.S. dollar
In the long term, the fund has placed in the top quartile for and the data on COVID vaccinations around the world. —BN

JULY/AUGUST 2021 INVESTMENT ADVISOR 31