Western Asset Core Portfolios

Investment Overview

The Western Asset Core Portfolios offer investors access to these flagship strategies in a separately managed account. These separately managed accounts consist of investments in individual securities and shares of no-fee mutual funds advised by Western Asset and its affiliates. The no-fee funds are used by Western Asset to achieve appropriate levels of diversification, as well as provide clients with exposure to sectors that are normally difficult to include in a separately managed account with low minimum investment requirements.

 

Investment Philosophy

Long-term

  • Seek out the greatest long-term value by thoroughly analyzing a wide range of sectors in the fixed income market.

Value-oriented

  • Identify and favor sectors and issuers that are undervalued or out of favor in the market.

Diversified strategies

  • Results do not depend on only one or two opportunities; multiple themes are employed in portfolios. Diversification seeks to limit the impact of a single adverse market event.
  • Strive to add incremental value over time and potentially reduce volatility.

Sector rotation

  • The Core Portfolios predominantly focus on investment-grade securities across all market sectors and maturities.
 

Key Differentiators

Unique structure

  • Utilizes an institutional-style hybrid approach for the strategy that combines individual securities and no-fee funds into one account.
  • Provides access within the fixed income market to a greater number of sectors, with more diversification in each sector than a traditional separately managed account with a similar minimum account size.
  • Increases the diversification within each sector, which may achieve lower volatility and higher returns than a traditional managed account with this minimum account size.

Leverage Western Asset Management resources

  • Institutional-caliber buying power and trading expertise
  • Access to proprietary credit research team 
  • Exclusive focus on fixed income management
 

The Core portfolios are available as separately managed accounts that utilize both individual securities and no-fee mutual funds. These mutual funds were created specifically for, and are made available exclusively through these separately managed accounts.

Shares of the no-fee funds may only be purchased by or on behalf of separately managed accounts managed by Legg Mason affiliates, including Western Asset. Managed account clients will pay fees to program sponsors or to their account managers, and such fees will be calculated taking into account assets invested in shares of no-fee funds. Unless reimbursed by the fund's manager or its affiliates, ordinary and extraordinary fund-level operating expenses are borne by fund shareholders. The manager of the no-fee funds has entered into an expense reimbursement agreement with the funds pursuant to which the manager has agreed to reimburse 100% of each fund's ordinary operating expenses through December 31, 2017. The expense reimbursement agreement does not cover brokerage, taxes and extraordinary expenses. Mutual funds are sold by prospectus. Please contact your financial professional for a prospectus for the no-fee funds discussed.

There is no guarantee that the Portfolio's objectives will be met.

 

 

Investment
Process

Interest rate exposure/duration weighting

The investment team comprehensively analyzes a variety of domestic and international macroeconomic factors to establish a duration target.

Term structure weighting

The Firm carefully employs strategies in an attempt to take advantage of changes in the yield curve’s shape and shifts in the relationship between short-, intermediate- and long-maturity securities.

Sector allocation

We believe that value can be added to a portfolio by actively rotating among, and within, different sectors of the bond market. The investment team studies the fundamental factors that influence sector spread relationships.

Issue selection

Using a bottom-up process, the Firm seeks to identify companies with changing credit characteristics and securities that are undervalued and out of favor due to unusual circumstances.

The investment process may change over time. The characteristics set forth above are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will be achieved.

 

 

meet your managers

One of the world’s leading global fixed income managers. Founded in 1971, the firm is known for team management, proprietary research and long-term fundamental value approach.


Meet Your Managers

Western Asset Team Approach

Team unites groups of specialists dedicated to different market sectors 

Each group of sector specialists utilizes their expertise in bottom-up analysis of each portfolio sector

To find out more about the Western Asset Core Portfolios, talk to your financial advisor.


 

What I Should Know
Before Investing

All investments involve risk, including loss of principal and there is no guarantee that investment objectives will be met.  Fixed income securities may be subject to extension risk, which is the risk that the issuer will repay their obligations more slowly than the market anticipates in the event market interest rates rise. Issuers also have the right to pay their payment obligations ahead of schedule in the event market interest rates fall, subjecting to prepayment risk.  Fixed income securities are subject to interest rate and credit risk, which is a possibility that the issuer of a security will be unable to make interest payments and repay the principal on its debt. As interest rates rise, the price of fixed income securities falls.  Foreign securities, where permitted, are subject to the additional risks of fluctuations in foreign exchange rates, changes in political and economic conditions, foreign taxation, and differences in auditing and financial standards. These risks are magnified in the case of investments in emerging markets.  U.S. Treasuries are direct debt obligations issued and backed by the "full faith and credit" of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasury securities, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government.  Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.  Investments may also be made in mortgage-backed, asset-backed securities and taxable municipal securities. Asset-backed securities generally decrease in value as a result of interest rate increases, but may benefit less than other fixed-income securities from declining interest rates, principally because of prepayments. Mortgage-backed securities involve additional risk over more traditional fixed-income investments, including: interest rate risk, implied call and extension risks; and the possibility of premature return of principal due to mortgage prepayment, which can reduce expected yield and lead to price volatility.  Investments may also be made in taxable municipal securities. 

Tapering of the Federal Reserve Board's quantitative easing program and a general rise in interest rates may lead to increased portfolio volatility.

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IMPORTANT INFORMATION: Past performance is no guarantee of future results. Management and performance of individual accounts may vary for reasons that include the existence of different implementation practices and model requirements in different investment programs.

Pure Gross performance shown does not reflect the deduction of investment management fees and certain transaction costs, which will reduce portfolio performance. Net performance includes the deduction of a 3% annual wrap fee for equity and balanced portfolios and a 1.5% annual wrap fee for fixed income portfolios. These deducted fees amounts are the maximum anticipated wrap fees. Actual fees may vary. For fee schedules, contact your financial professional or, if you enter into an agreement directly with Legg Mason Private Portfolio Group, LLC ("LMPPG"), refer to LMPPG's Form ADV disclosure document. Returns reflect the reinvestment of dividends and other earnings.

An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

Please see GIPS® endnotes for important additional information regarding the portfolio performance shown and for effects of fees.

Performance Source: Legg Mason

Hypothetical growth of dollars: For illustrative purposes only. Assumes no withdrawals or contributions. The performance results shown were calculated assuming reinvestment of dividends and income and take into account both realized and unrealized capital gains and losses.

IMPORTANT INFORMATION: Separately Managed Accounts (SMAs) are investment services provided by Legg Mason Private Portfolio Group, LLC (LMPPG), a federally registered investment adviser. Client portfolios are managed based on investment instructions or advice provided by one or more of the following Legg Mason-affiliated sub-advisers: ClearBridge Investments, and Western Asset Management Company. Management is implemented by LMPPG, the designated sub-adviser or, in the case of certain programs, the program sponsor or its designee.


Professional money management may not be suitable for all investors. Factual information relating to the securities discussed was obtained from sources believed to be reliable, but there can be no guarantee as to its accuracy. It should not be assumed that investments made in the future will be profitable or will equal the performance of the securities discussed in the material.

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Portfolio characteristics and sector weightings are based on a representative account within the composite. Portfolio characteristics and sector weightings of individual client portfolios in the program may differ, sometimes significantly, from those shown above. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the sectors listed and should not be used as a sole basis to make any investment decisions.
Source: Legg Mason

Credit quality is a measure of a bond issuer's ability to repay interest and principal in a timely manner. The credit ratings shown are based on each portfolio security's rating as provided by the following Nationally Recognized Statistical Rating Organizations ("NRSRO"): Standard and Poor's ("S&P"), Moody's Investors Service ("Moody's"), Fitch Ratings, Ltd. In the event a portfolio security is rated by more than one NRSRO, the higher rating is shown. In the case where a security is not rated by an NRSRO, these are listed as "Non Rated". The credit quality of the investments in the Portfolio does not apply to the stability or safety of the Portfolio. These ratings may change over time. The Portfolio itself has not been rated by a NRSRO.

For important information regarding the underlying no-fee funds, including the prospectus and holdings, click here. Shares of the funds may be purchased only by or on behalf of separately managed account clients.

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Western Asset Core GIPS® endnotes December 31 ($USD)
Year Net
return
(%)
“Pure”
gross
return (%)1
Benchmark
total
return (%)
Gross
total
3 Yr.
St. Dev.
Benchmark
total
3 Yr.
St. Dev.
Number
of
portfolios
Bundled
fee
portfolios
(%)
Internal
dispersion
(%)
Composite
assets
($mm)
Firm
assets
(%)
2007 4.66 6.22 6.97 - - 11 100 n/a 5 0.00
2008 0.37 1.88 5.24 - - 22 100 0.03 17 0.00
2009 10.96 12.61 5.93 - - 28 100 0.16 28 0.01
2010 7.54 9.14 6.54 - - 26 100 0.09 28 0.01
2011 5.71 7.29 7.84 3.08 2.82 25 100 0.09 27 0.01
2012 4.92 6.49 4.22 2.59 2.42 60 100 0.14 51 0.01
2013 -3.34 -1.89 -2.02 2.94 2.75 48 100 1.39 74 0.02
2014 5.79 7.37 5.97 2.97 2.67 101 100 0.14 83 0.02
2015 -0.08
1.41 0.55 3.20 2.92 207 100 0.19 163 0.04
2016 2.22 3.75 2.65 3.15 3.02 333 100 0.31 258 0.06

Western Asset claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Western Asset has been independently verified for the periods from January 1, 1993 to December 31, 2015. The verification report is available upon request.

Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. The verification does not ensure the accuracy of any specific composite presentation.

For GIPS® purposes, the Firm is defined as Western Asset, a primarily fixed-income investment manager comprised of Western Asset Management Company, Western Asset Management Company Limited, Western Asset Management Company Pte. Ltd., Western Asset Management Company Ltd., Western Asset Management Company Pty Ltd., and Western Asset Management Company Distribuidora de Títulos e Valores Mobiliários (DTVM) Limitada, with offices in Pasadena, New York, London, Singapore, Tokyo, Melbourne, São Paulo, Hong Kong, and Dubai. Each Western Asset company is a wholly owned subsidiary of Legg Mason, Inc. (“Legg Mason”) but operates autonomously, and Western Asset, as a firm, is held out to the public as a separate entity. Western Asset Management Company was founded in 1971. The Firm is comprised of several entities as a result of various historical acquisitions made by Western Asset and their respective performance has been integrated into the Firm in line with the portability requirements set forth by GIPS.

Effective April 2007, Western Asset manages these portfolios as sub-advisor to its affiliate, Legg Mason Private Portfolio Group, LLC. From January 2006 through March 2007, Western Asset portfolio managers managed these portfolios as dual employees of ClearBridge Advisors, LLC, and ClearBridge Asset Management Inc. (each a Western Asset affiliate), following Western Asset’s investment process and having access to Western Asset’s investment resources, expertise and investment outlook.

Western Asset – Core portfolios are discretionary fixed-income portfolios that offer – to individual and taxable institutional investors – tailored bond management which seeks to maximize total return and has the flexibility to invest across a range of fixed-income sectors, including the U.S. government, federal agency, domestic corporate, mortgage and money market/cash equivalent sectors. Exposure to certain fixed income sectors represented in the strategy are achieved by investing in shares of one or more mutual funds managed by Western Asset. The composite is comprised of accounts that are separately managed accounts (SMAs), managed in accordance with the strategy with an account minimum of US $150,000 (prior to 11/1/2014, the composite minimum was US $250,000). As of January 1, 2007, the composite employs a 10% significant cash flow policy. The composite was created on January 1, 2007.

Effective January 1, 2013, the number of portfolios reflects a change from prior periods due to an aggregation of accounts as reported by one sponsor. For periods prior to 2013, the firm excluded accounts designated by the sponsor as client-restricted.

For comparison purposes, composite returns are shown against returns of the Bloomberg Barclays U.S. Aggregate Bond Index. An investor cannot invest directly in an index.

1“Pure” gross returns are presented as supplemental information to the net returns. The current fee schedule is 1.50% on all assets. Net returns are calculated by deducting the anticipated maximum annual bundled fee applied on a monthly basis from the "pure" gross monthly return. The bundled fee includes all charges for trading costs, portfolio management, custody, and other administrative fees. Bundled fees may vary across different financial firms and across different accounts based upon account size and other factors. Returns and market values are expressed in USD.

Dispersion is calculated using the asset-weighted standard deviation of annual returns of those portfolios that were included in the composite for the entire year (equal-weighted prior to 2014). Periods with five or fewer accounts are not statistically representative and are not presented. The three-year annualized ex-post standard deviation measures the variability of the composite and the benchmark returns over the preceding 36-month period. Standard deviation is not presented for periods where 36 monthly returns are not available for the composite or the benchmark.

Past investment results are not indicative of future investment results.

Western Asset’s list of composite descriptions and policies for valuing portfolios, calculating performance, and preparing compliant presentations are available upon request. Please contact Ellen Cammer at 212-601-6064 or Ellen.Cammer@westernasset.com.

All investments involve risk, including loss of principal. Past performance is no guarantee of future results. Please see each product’s webpage for specific details regarding investment objective, risks associated with hedge funds, alternative investments and other risks, performance and other important information. Review this information carefully before you make any investment decision.

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