The Legg Mason Western Asset Global Credit Absolute Return fund is set to launch on 1 May with a strong bias towards senior and subordinated financial debt.
The new long/short fund, to be run by specialist fixed income affiliate Western Asset, will be added to Legg Mason’s Dublin-domiciled range and target an 8% to 10% return per annum.
Portfolio manager Dipankar Shewaram says the tactical fund can have up to 50% in non-investment grade securities and run a duration of between -10 to 10 years. The fund will have a maximum 20% foreign currency exposure and VaR limit of 20%.
Shewaram has run a model portfolio since the start of the year, which is net long 50% senior financials, 25% subordinated financials, 25% high yield and 2% emerging market credit.
The fund is 15% net short in single industrial names, along with 10% net short CDS on both the iTraxx Main and iTraxx Xover.
“In 2008 and 2009, it was really all about beta. In 2008 it was all about not owning any credit and being short credit if you could, in 2009 it was about finding the cheapest structure to be leveraged long credit,” Shewaram says.
“If you look at 2005 and 2006, there was a lot more dispersion in terms of the performance of the top 10% of constituents and bottom 10% of the European universe. I think 2010 and 2011 is going to be similar to this, which is going to be ripe for a long/short or total return credit portfolio.”
Despite the strong rally in credit markets in 2009, in particular financials, Shewaram believes the sector still has value – in both senior and subordinated debt.
“The deleveraging and the increased focus for the financials sector to look more utility-like will be the key going forward,” Shewaram adds. “This will favour financials.”
