0914 Monthly Commentary Legg Mason Global Funds plc Legg Mason Western Asset Emerging Markets Bond Fund 1 Performance to 30/09/14 QUICK VIEW Key performance drivers 1 The Fund fell 3.25% in US dollar terms in September, while its benchmark, the JP Morgan Emerging Markets Bond Index Global, was down 2.41%. Country selection detracted. Corporate sector exposure added value. Overweight exposure to local currency bonds was detrimental. Security selection had a negative impact. Views and positioning In September, the manager added exposure to external sovereigns in El Salvador and Ghana and reduced exposure to corporate bonds in Russia and Chile. The manager continues to like unhedged local bond exposure in Mexico and Brazil. The Fund remains overweight in sovereigns in Indonesia and Peru, and underweight in Lebanon, the Philippines and Ukraine. The Fund maintains its overweights in corporate issues in Brazil, Colombia, India and Mexico. Sector-wise, the manager continues to favour oil and gas, metals and mining and telecommunications. Current activity and manager outlook The manager believes that the main risk to emerging markets remains the global environment. The manager expects the end of quantitative easing, which began to taper in December, to continue resulting in periodic bouts of volatility. The manager will also continue to monitor closely China’s economic data which, albeit a bit softer, still supports the manager’s expectation of a soft landing. Legg Mason Western Asset Emerging Markets Bond Fund JP Morgan Emerging Markets 2 Bond Index Global 1 3 Month Months YTD 1 Year 5 Years -3.25% -2.70% 5.77% 5.75% 6.04% -2.41% -1.65% 7.30% 8.28% 7.93% Past performance is no guide to future returns and may not be repeated. Market Review Geopolitical tensions, though remaining a concern, eased in September. A ceasefire agreement in Ukraine helped reduced market anxiety. An international force launched airstrikes on various targets of ISIS. In Hong Kong, protests erupted over China’s level of control of local elections. As the end of summer approached, bond market volatility increased. US Treasury yields climbed higher and global credit and emerging market (EM) spreads widened across sectors. EM fixed income debt was generally weaker across all sectors during the month. US dollar-denominated sovereign bonds (the JP Morgan Emerging Market Bond Index Global) returned -2.41%, while US dollar-denominated EM corporate bonds (the JP Morgan Corporate Emerging Market Bond Index Broad) were down 0.99%. Local-currency-denominated sovereign bonds (the JP Morgan Global Bond Index – Emerging Market Global Diversified) fell 5.11% in US dollar terms. EM currencies were generally lower versus the US dollar, and the price of crude oil dropped below US$100 per barrel. Fund Review 1 The Legg Mason Western Asset Emerging Markets Bond Fund fell 3.25% in US dollar terms in September, while its benchmark, the JP Morgan Emerging Markets Bond Index Global, was down 2.41%. In terms of country selection, the Fund’s large underweight to higherperforming countries, such as China and Lebanon, detracted. Exposure to the corporate sector in Mexico and Brazil contributed to performance while overweight exposure to local currency bonds detracted. Local currency bonds in Mexico and Brazil were weaker as the Mexican peso and the Brazilian real weakened versus the US dollar during the month. Issue selection in the corporate sector hurt performance with issuers in Brazil such as Virgolino and Petrobras underperforming in September. During the month, the manager added exposure to external sovereigns in El Salvador and Ghana and reduced exposure to corporate bonds in Russia and Chile. The manager continues to like unhedged local bond exposure in Mexico and Brazil. The Fund remains overweight to external sovereigns in Indonesia and Peru, and underweight to Lebanon, the Philippines and Ukraine. The Fund remains overweight to corporates in Brazil, Colombia, India and Mexico as the manager believes external corporates remain more attractive than external sovereigns. Within the corporate sector, the manager continues to favour corporate industries related to oil and gas, metals and mining and telecommunications. PLEASE REFER TO THE IMPORTANT INFORMATION ON THE FINAL PAGE. Brandywine Global • ClearBridge Investments • LMM • Martin Currie • Permal • QS Batterymarch • QS Legg Mason Global Asset Allocation Royce & Associates • Western Asset Management 1/2 0914 Monthly Commentary Legg Mason Global Funds plc Legg Mason Western Asset Emerging Markets Bond Fund Outlook The manager believes that the main risk to EM remains the global environment. The continued normalisation of US monetary policy will likely pressure some of the more vulnerable EM countries into making tough policy choices, including tighter fiscal policy, structural reforms, tighter monetary policy or weaker exchange rates. The manager expects the end of quantitative easing, which began to taper in December, to continue resulting in periodic bouts of volatility. The manager will also continue to monitor closely China’s economic data which, albeit a bit softer, still supports the manager’s expectation of a soft landing. The Chinese have significant tools available to provide stimulus as necessary and have developed a detailed plan to convert the country’s exportdriven economy to a consumer-driven one over the next decade. Recent increased tension in the Middle East and Eastern Europe continues to be a wildcard as a contributor to uncertainty in the global environment. During this period of heightened volatility, the manager will continue to look for ideas in the EM debt space and will seek to take advantage of relative value opportunities that arise. This Fund is managed by Western Asset Management. ¹ Source: Legg Mason, as of 30 September 2014. Class A Acc USD performance is net of fees and is calculated on a NAV to NAV basis (USD), with any income and dividends reinvested, if any, without any initial charges but reflecting annual management fees. Performance figures inclusive of sales charge is -8.09% for 1 Month, -7.57% for 3 Months, 0.48% for YTD, 0.46% for 1 Year and 4.95% for 5 Years. Performance for periods above one year is annualised. Investment involves risks. Past performance is not indicative of future results. ² Prior to 01/01/2013, the benchmark was JP Morgan Emerging Markets Bond Index Plus. IMPORTANT INFORMATION The Fund may invest in certain types of derivatives for investment and/or efficient portfolio management purposes. Please refer to the prospectus for more information. Source: Western Asset Management. This document is issued by Legg Mason Asset Management Singapore Pte. Limited in Singapore (“Legg Mason”) and is for information only and does not constitute an offer or invitation to the public to purchase any shares in any fund in Singapore. This document is for information only and is not intended to provide investment advice. All data, opinions, estimates and other information are provided as of the date of this document and may be subject to change without notice. The prospectus of the fund is available and may be obtained from Legg Mason or its authorised distributors. Investors should check with Legg Mason or its authorized distributors on whether a particular class of the fund is available for subscription. Investors should read the most current prospectus prior to any subscription. All applications for units in the fund must be made on the application forms accompanying the prospectus. 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