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Global Opportunistic Absolute Return Strategy Profile

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Global Opportunistic Absolute Return Strategy Profile STRATEGY OVERVIEW 2Q 2015 | As of June 30, 2015 Global Opportunistic Absolute Return Strategy Profile OBJECTIVE We strive to generate positive absolute returns over a full market cycle regardless of market conditions. The portfolio's goal is to outperform the Citigroup 3-Month T-Bill Index on a rolling 36-month basis by 300 bps net of fees annualized. INVESTMENT PHILOSOPHY We believe currencies and interest rates serve as economic regulators. As valuations overextend, currencies and interest rates will adjust accordingly, eventually impacting economic behavior and setting economic forces in motion that renormalize valuations in the opposite direction. INVESTMENT PROCESS SUMMARY We apply a top-down, macro-driven investment process and invest only where we believe opportunities exist with respect to interest rate levels and currency valuations. Bond markets that provide the highest or lowest real yields are identified as potential longs or shorts, respectively. Currency valuations are also monitored for extreme valuation. THE LONG-SHORT APPROACH The long-short approach enables us to take equally substantial positions in markets we believe to be overvalued as in markets we believe to be undervalued as long as the market size and liquidity characteristics are supportive. OUR COMPETITIVE ADVANTAGE Furthermore, market forces supporting mean reversion must also be present. We concentrate long positions in 8 to 16 markets with the highest return potential. Short positions are taken in markets we believe are overvalued. The strategy is designed to isolate Fundamental factors, secular trends, political and monetary conditions, and business cycle risks drive the the Global Fixed Income team’s country-weighting process. Once an investment becomes fully valued, we look to take profits and reallocate into a more undervalued segment of the universe. best alpha opportunities, targeting positive absolute performance in CURRENCY any market environment. To achieve this goal, the investment team will Currency management is focused on real interest rates, currency valuation, and the perceived impact of currency express market perspectives through valuations on economic conditions and inflation. Currency valuations tend to stretch but not break, and the inflection point preceding mean reversion is often signaled by a change in economic or political behavior. We look both long and short exposures to for these signs of behavioral change and supporting economic data that will act as a catalyst for renormalization interest rates, currencies, and credit of valuations. Currency shorts or hedges are used in overvalued markets. markets around the globe. DURATION MANAGEMENT The strategy is capable of employing a negative or zero portfolio duration in times when we believe yields globally are at a high threat of rising. However, we concentrate bond investments in countries where we believe value is potentially greatest. As a result, long positions tend to have an intermediate- to long-term bias in markets offering attractively high real yields. SECTOR AND ISSUE SELECTION For clients who permit corporate debt, we strategically invest when corporate spreads are wide and policy and economic fundamentals suggest significant spread tightening is likely. STRATEGY OVERVIEW Global Opportunistic Absolute Return - Update 2Q 2015 | As of June 30, 2015 AT A GLANCE ASSETS UNDER MANAGEMENT (M) (Shown in USD) Brandywine Global, Firmwide 67,284 We seek to generate absolute returns regardless of market conditions through strategic Fixed Income Product Group 50,785 investment in countries, currencies, sectors, and securities Global Opportunistic Absolute Return 4,624 Universe: Primarily sovereign debt and currencies of developed or emerging countries; opportunistic exposure to corporate debt of developing or emerging countries. ANNUALIZED RETURNS (%) (Results shown in USD) Derivative instruments may be used to gain long, short, or hedged exposure to bond or currency markets Gross Net C3MTB USL3M Country, duration, and currency limits allow for long or short positions QTD - 1.17 - 1.36 0.00 0.07 Long investments are typically concentrated in 8 to 16 countries’ bonds or currencies YTD 0.14 - 0.24 0.01 0.13 that we believe offer the most attractive absolute return potential 1 Year 3.22 2.45 0.02 0.25 Short positions are only established in interest rates or currencies that we think are extremely overvalued, will fall in value, and can potentially generate absolute return 3 Year 5.14 4.32 0.05 0.27 The portfolio can hold up to 35% of securities and respective currencies rated below 5 Year 4.87 3.86 0.06 0.32 investment-grade quality at the time of purchase 7 Year 5.72 4.62 0.17 0.56 Since Inception 5.50 4.40 0.19 0.58 Inception Date: 6/1/2008 TYPICAL INVESTMENT GUIDELINES CALENDAR YEAR RETURNS (%) (Results shown in USD) Absolute Duration Absolute Cash Bond Absolute Currency Contribution 1 Allocation Allocation Gross Net C3MTB USL3M U.S. +/- 4 Years 0 to 70% 0% - 150% 2015 0.14 - 0.24 0.01 0.13 Canada +/- 1 Years 0 to 25% +/- 25% 2014 5.87 5.08 0.03 0.23 Euro +/- 4 Years 0 to 60% +/- 40% 2013 2.32 1.56 0.05 0.27 Germany/France +/- 2 Years 0 to 40% 2012 13.36 12.11 0.07 0.44 Italy +/- 1.5 Years 0 to 30% 2011 1.20 - 0.05 0.08 0.34 U.K. +/- 2 Years 0 to 40% +/- 40% 2010 5.06 3.77 0.13 0.35 Japan +/- 3 Years 0 to 50% +/- 40% 2009 15.22 13.82 0.16 0.71 2 AA or Better +/- 1.5 Years 0 to 25% +/- 25% 2008 - 3.02 - 3.73 0.81 1.69 2 A or Better +/- 1.5 Years 0 to 15% +/- 15% 3 2 BBB or Better +/- 1.0 Years 0 to 10% +/- 10% REGION & CURRENCY ALLOCATIONS (%) 2 Below BBB +/- 0.5 Years 0 to 5% +/- 5% Total Currency Total Portfolio Duration Range Max Duration Position Long 100-170% / Short 0-70% -5 to +5 years Long 5 years / Short -5 years 3 CHARACTERISTICS Global Opportunistic Absolute Return C3MTB Average Quality A N/R Average Maturity (Years) 8.54 0.25 Average Modified Duration (Years) 2.77 0.25 Average Coupon (%) 3.93 - Current Yield (%) 3.55 - Average Yield to Maturity (%) 3.24 0.02 Number of Issues 59 - 3 3 QUALITY RATINGS (%) DURATION ALLOCATION (%) ■ AAA ■ 0-1 Years ■ AA ■ 1-3 Years ■ Region ■ Currency ■ A ■ 3-7 Years ■ BBB ■ 7-10 Years Past performance is no guarantee of future results. ■ BB or Lower ■ 10+ Years ■ NR STRATEGY OVERVIEW Global Opportunistic Absolute Return - 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 4 PORTFOLIO MANAGER Regina is a portfolio manager for Fixed Income, with a concentration in High Yield securities. Regina joined Brandywine Global Investment Management (Europe) Limited in December 2010, bringing with her ten years of investing experience.
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