FTGF BW Glb FI A GBP Acc |
Morningstar's Take
|04/10/2024by Saraja Samant
| FTGF Brandywine Global Fixed Income is run by an experienced team, but the strategy’s added guardrails constrain its potential. The strategy is in the hands of the same capable leaders. David Hoffman has comanaged this strategy since its 2003 launch, alongside Jack McIntyre, who joined the firm in 1998. In May 2016, the firm hired global macro veteran Anujeet Sareen, and he has since stepped into a leading role here. In early 2021, credit specialist Brian Kloss and mortgage expert Tracy Chen, both veterans of the firm’s taxable-bond team, joined the management squad, adding to the heft. The team’s process is active at heart. The managers disregard issuance-weighted indexes, preferring instead to search for high real yields and undervalued currencies in countries with strong or improving fundamentals. In the past, searching for high real yields and undervalued currencies has led to significant emerging-markets exposure and little exposure to low- to negative-yielding developed-markets staples, such as Japan. Effective May 2024, however, the exposure to emerging-markets debt has been limited to 25% of the portfolio assets, and the non-US dollar exposure has been severely reduced. In line with these changes, the strategy is now benchmarked against the FTSE World Government Bond Index US-dollar-hedged index, while it previously used its unhedged counterpart. These limitations are in addition to the guardrails already in place, which restrict investment in corporate, securitized, and high-yield debt. This increases the strategy’s reliance on two levers—country selection and duration positioning—both of which are difficult to get consistently right over the long term. Given the manager’s macro valuation-driven approach, the team has often taken outsize bets that resulted in high volatility. For example, the portfolio’s large active bet on the Japanese yen, which was as high as 21% of assets as of September 2023, largely hurt over the past three years. After being a constant detractor to returns, the team removed the portfolio’s yen exposure completely in June 2024 owing to its mandate change. The yen has strengthened against the US dollar since, a missed opportunity. Similarly, an above-average duration positioning from mid-2022 through 2023 hurt returns as rates remained elevated across developed markets over that period; the strategy’s duration is now down to 7.6 years as of June 2024 after reaching as high as 8.8 years in mid-2023 (almost a year longer than its index). While the additional limitations placed on portfolio construction should limit performance deviations against the index going forward, they also curtail the strategy’s ability to fully exploit the team’s skill set, and thus limit our conviction here. |
Limited flexibility hampers this global-bond offering.To find out how Morningstar rates a fund click here.
| Morningstar Pillars | |
| People | Above Average |
| Parent | Average |
| Process | Average |
Morningstar Medalist RatingMorningstar assigns the Medalist Rating to funds that are qualitatively and quantitatively assessed through manager research and algorithmic processes. The assessment turns on three key “pillars” – People, Process, and Parent – that yield an estimate of how well a fund will perform before fees but after adjusting for risk.
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