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International Opportunistic Fixed Income Strategy Profile

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International Opportunistic Fixed Income Strategy Profile STRATEGY OVERVIEW 2Q 2015 | As of June 30, 2015 International Opportunistic Fixed Income Strategy Profile OBJECTIVE We strive to capture interest income and additionally generate principal growth through capital appreciation when market conditions permit. Our goal is to outperform the investment benchmark by at least 2%, on an average annual basis, over rolling five-year periods. UNIVERSE The sovereign debt and currencies of countries in the Citigroup World Government Bond Index ex-U.S., as well as the investment-grade corporate bond and mortgage-backed securities markets in those countries. We may also invest, to limited degrees, in emerging market and high yield debt, as well as in non-index countries rated A or better by a nationally recognized statistical rating organization. INVESTMENT PROCESS SUMMARY We apply a top-down, value-driven process when structuring International Opportunistic Fixed Income portfolios. Real (inflation-adjusted) yield is our primary measure of bond value. Currency valuation is also important, as the real yield must be captured in the investor's local currency (dollars for U.S. investors and euros for many of those in Europe, for example). We focus on appreciating, undervalued currencies and we hedge overvalued currencies we believe may decline. Inflation trends, political risks, monetary trends, and business cycle and liquidity measures are also considered. We typically concentrate investments in 8-14 countries that appear to offer the best total return potential. OUR COMPETITIVE ADVANTAGE DURATION MANAGEMENT The strategy employs a top-down, value-based, and We concentrate investments where we believe value is greatest; as a result, our portfolios tend to have an benchmark-agnostic approach for intermediate- to long-duration bias when real interest rates are high. Greater interest rate exposure is assumed in countries with more value and positions are established along the yield curve where we find the best risk/reward managing international fixed profile. Portfolio duration generally ranges from 1 to 10 years. income assets. Backed by a rigorous macroeconomic research COUNTRY ROTATION process designed to anticipate risk and uncover value, the strategy We believe that concentrating investments in the markets with the highest potential returns—that is taking above-average country risk—actually reduces overall risk. Secular trends, political and monetary conditions, and targets sovereigns with an business cycle risks are considered in determining the likelihood that we can capture the value we see in real attractive combination of high real interest rates and currencies. Each factor contributes to our country weighting decisions. yields and durable fundamentals. CURRENCY Currency and country decisions are intertwined. We seek to invest in bonds with high real yields that are denominated in appreciating currencies. We hedge our currency exposure in countries with high real rates but overvalued currencies. ISSUE SELECTION Within the desired country and currency, security selection is based on yield-curve analysis, desired duration, and the wideness of credit spreads relative to government issues. Allocations to high yield issues and emerging markets are made on a tactical basis. STRATEGY OVERVIEW International Opportunistic Fixed Income - Update 2Q 2015 | As of June 30, 2015 AT A GLANCE ASSETS UNDER MANAGEMENT (M) (Shown in USD) Brandywine Global, Firmwide 67,284 Primary Benchmark: Citigroup World Government Bond Index ex-U.S. (unhedged) or Fixed Income Product Group 50,785 other international bond benchmark, as specified by client direction International Opportunistic Fixed Income 1,554 Universe: The sovereign debt and currencies of countries in the Citigroup World Government Bond Index ex-U.S., as well as the investment-grade corporate bond and ANNUALIZED RETURNS (%) (Results shown in USD) mortgage-backed securities markets in those countries. We may also invest, to limited degrees, in emerging market and high yield debt, as well as in non-index countries Gross Net CWGBIX BGAX rated A or better by a nationally recognized statistical rating organization QTD - 3.40 - 3.51 - 1.54 - 0.83 Real yield is our primary measure of value, followed closely by currency valuation. YTD - 4.42 - 4.64 - 5.83 - 5.43 Inflation, monetary trends, political risks, the business cycle, and liquidity measures are 1 Year - 8.23 - 8.65 - 13.49 - 13.19 also considered We strive for efficient duration management and country rotation (driven primarily by 3 Year 2.51 2.05 - 3.88 - 2.83 currency considerations) to add incremental value 5 Year 5.26 4.79 0.32 1.08 Investments typically are concentrated in 8-14 countries that we believe have the best 7 Year 5.34 4.86 0.95 1.14 total return potential 10 Year 5.60 5.09 2.63 2.82 Since Inception 8.55 8.01 4.77 4.95 TYPICAL INVESTMENT GUIDELINES Inception Date: 10/1/2000 Country Currency CALENDAR YEAR RETURNS (%) (Results shown in USD) U.S.* – 0%-100% Canada 0%-30% 0%-30% Gross Net CWGBIX BGAX Euro – 0%-80% 2015 - 4.42 - 4.64 - 5.83 - 5.43 Germany, France (each) 0%-50% – 2014 5.06 4.59 - 2.68 - 3.08 Italy 0%-40% – 2013 - 1.89 - 2.33 - 4.56 - 3.08 Belgium, Netherlands, Spain (each) 0%-25% – 2012 16.47 15.95 1.51 4.09 United Kingdom 0%-50% 0%-50% 2011 4.02 3.55 5.17 4.36 Denmark, Sweden (each) 0%-25% 0%-25% 2010 9.24 8.76 5.21 4.94 Japan 0%-70% 0%-70% 2009 13.47 12.95 4.39 7.52 New Zealand 0%-15% 0%-15% 2008 0.22 - 0.33 10.11 4.38 Other Indexed Countries (each) 0%-20% 0%-20% 2007 9.46 8.86 11.45 11.04 Non-Index Countries 2006 6.66 6.08 6.94 8.15 A or Better (each)** 0%-10% 0%-10% 2005 - 1.18 - 1.72 - 9.20 - 8.65 Below A (each)** 0%-5% 0%-5% 1 Other Non-Index Countries (aggregate) 0%-45% 0%-45% REGION & CURRENCY ALLOCATIONS (%) Below BBB (aggregate)** 0%-10% 0%-10% 1 CHARACTERISTICS International Opportunistic Fixed Income CWGBIX Average Quality A AA- Average Maturity (Years) 13.48 9.49 Average Modified Duration (Years) 7.24 7.93 Average Coupon (%) 4.94 2.79 Current Yield (%) 4.45 - Average Yield to Maturity (%) 4.04 1.09 Number of Issues 43 755 1 1 QUALITY RATINGS (%) DURATION ALLOCATION (%) ■ AAA ■ 0-1 Years ■ AA ■ 1-3 Years ■ A ■ 3-7 Years ■ BBB ■ 7-10 Years ■ BB or Lower ■ 10+ Years ■ NR ■ Region ■ Currency ■ CWGBIX Past performance is no guarantee of future results. STRATEGY OVERVIEW International Opportunistic Fixed Income - Investment Team 2Q 2015 | As of June 30, 2015 LEAD PORTFOLIO MANAGERS DAVID F. HOFFMAN, CFA MANAGING DIRECTOR & PORTFOLIO MANAGER David is co-lead portfolio manager for the Firm's Global Fixed Income and related strategies. He joined the Firm in 1995. Previously, David was president of Hoffman Capital, a global financial futures investment firm (1991-1995); head of fixed income investments at Columbus Circle Investors (1983-1990); senior vice president and portfolio manager at INA Capital Management (1979-1982), and fixed income portfolio manager at Provident National Bank (1975-1979). David is a CFA® charterholder and earned a B.A. in Art History from Williams College. He is a member of the Firm's Executive Board, currently serving as the Board's chair. JACK P. MCINTYRE, CFA PORTFOLIO MANAGER, SENIOR RESEARCH ANALYST As portfolio manager and senior research analyst for the Firm's Global Fixed Income and related strategies, Jack provides valuable analytical and strategic insight. He joined the Firm in 1998. Previously, he held positions as market strategist with McCarthy, Crisanti & Maffei, Inc. (1995-1998); senior fixed income analyst with Technical Data, a division of Thomson Financial Services (1992-1995); quantitative associate with Brown Brothers Harriman & Co. (1990), and investment analyst with the Public Employee Retirement Administration of Massachusetts (1987-1989). Jack is a CFA® charterholder and earned an M.B.A. in Finance from the Leonard N. Stern Graduate School of Business at New York University and a B.B.A. in Finance from the University of Massachusetts, Amherst. STEPHEN S. SMITH MANAGING DIRECTOR & PORTFOLIO MANAGER Steve is co-lead portfolio manager for the Firm's Global Fixed Income and related strategies. He is a member of the Firm's Executive Board. He joined the Firm in 1991 to diversify the Firm's investment strategies and start the global fixed income product. Previously, Steve was with Mitchell Hutchins Asset Management, Inc. as managing director of taxable fixed income (1988-1991); Provident Capital Management, Inc. as senior vice president overseeing taxable fixed income (1984-1988); Munsch & Smith Management as a founding partner (1980-1984), and First Pennsylvania Bank as vice president and portfolio manager in the fixed income division (1976-1980). Steve earned a B.S. in Economics and Business Administration from Xavier University, where he is currently chair of the university's investment and plant & building committees, a member of the executive committee, and serves on the board of trustees. Steve is also a member of the board of trustees at the Winterthur Museum & Country Estate, a nonprofit, educational institution. INVESTMENT TEAM MICHAEL ARNO, CFA RESEARCH ANALYST Mike is a research analyst on the Global Credit team. He is responsible for providing credit research analysis and support. He joined Brandywine Global as a product specialist within client service in 2006 and has been a member of the Global Credit team since April 2011. Prior to joining Brandywine Global in 2006, Mike was an associate for the Vanguard Group (2004-2006). A CFA® charterholder, he earned a B.S. in Finance from Temple University. REGINA BORROMEO 2 PORTFOLIO MANAGER Regina is a portfolio manager for Fixed Income, with a concentration in High Yield securities.
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