Western Asset Managed Municipals Portfolios

Investment Overview

Western Asset Managed Municipals Portfolios consist of directly owned individual securities and shares of a no-fee mutual fund advised by Western Asset. The no-fee fund is used by Western Asset to achieve appropriate levels of diversification, as well as blend the attractive features of individually managed portfolios with the benefit of exposures to sectors that are normally difficult to include in a separately managed account with low minimum investment requirements.
 

Investment philosophy

  • Provide investors with diversified, long-term value-oriented portfolios
  • Through integrated risk management and analytics, seek to deliver solid risk-adjusted returns
  • Bottom-up credit focus targets long-term trends leading to lower-turnover portfolios seeking to weather cyclical storms

 

Investment Objective

The strategy seeks to provide current income exempt from regular federal income taxes and achieve total return over a full market cycle.
 

Key Differentiators

Unique structure

Hybrid approach combining;

  • flexibility across the full municipal credit and duration spectrum
  • ability to rotate sectors more tactically
  • ability to own smaller, less liquid holdings
  • ability to manage through the interest rates cycle by employing the firm’s macro views with interest rate hedges

Provides broader access and greater diversification among fixed income sectors than traditional separately managed accounts of similar size

Municipal expertise

  • Managing municipal portfolios since 1981
  • Five-person portfolio manager team averaging more than 28 years of experience
  • Team supported by both credit and quantitative research analysts
  • $24.4 billion of municipal assets under management (as of December 31, 2015)

Overseen by a fixed income leader

  • Institutional-caliber buying power and trading expertise
  • Access to highly regarded municipal bond sector specialists
  • Exclusively focused on fixed income management

 

Diversification does not guarantee a profit or protect against a loss.

 

 

Investment
Process

Identify attractive sectors

Invest mainly in investment-grade municipals, but may also include higher-yielding, lower-rated securities, limited to 20% of assets.

Identify municipal issuers

Bottom-up credit research targeting long-term relative value positions within the municipal sector. Employs a book yield objective, integrated throughout the portfolio and risk processes, with the goal of maintaining a buy/hold low-turnover portfolio that can weather cyclical storms.

Manage through interest rate cycles

Managing duration through security structure, curve placement and the use of Treasury futures to dampen rate volatility, as well as profit when the relationship between treasuries and municipals makes one market rich or cheap in comparison with the other.

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.

 

 

Portfolio Construction

Western Asset portfolios will normally maintain a minimum of 50% of the portfolio in individual securities. These securities will consist primarily of municipal securities across the investment-grade sector, but they may also include higher-yielding, lower-rated municipals. These municipal securities are an integral part of the overall portfolio construction and are actively managed in concert with the no-fee fund.
 

Portfolio Composition



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

Legg Mason

To find out more about the Western Asset Managed Municipals 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 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.  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 illiquidity risk, which is the risk that securities may be difficult to sell at certain prices when no market participants are willing to purchase the securities at such prices.  For tax-exempt securities, certain investors may be subject to the Federal Alternative Minimum Tax, and state and local taxes may apply. Capital gains, if any, are fully taxable.  State-specific and state-biased portfolios within this Portfolio focus on individual states and are more vulnerable to losses caused by adverse developments in those states than are national portfolios, which diversify investments across multiple states.  Market, security and/or other investment considerations may result in higher turnover from time to time. Also, all capitalization ranges will not necessarily be represented in an individual account.

Legg Mason, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. 

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.

Prior to January 2016, performance results were calculated using Western Asset’s US Municipal Long Composite which was comprised of institutional accounts with a minimum of US $10 million. Net total returns were calculated by reducing the institutional gross-of-fees performance by the highest bundle fee of 1.5%. Western Asset follows substantially the same investment philosophy, strategies and processes in managing SMA Managed Municipal portfolios that it does in managing institutional US Municipal Long portfolios. The performance of Western’s Managed Municipals Composite may vary from the performance of the institutional Municipal Long Composite, especially over shorter time periods and during periods of extraordinary market conditions. The SMA portfolios are implemented through a combination of individual holdings along with an allocation to a no load mutual fund share created to allow the portfolio managers to replicate the same themes and characteristics of our managed municipal institutional and mutual fund strategy. Members in the institutional composite typically hold individual securities.

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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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 Managed Municipals – 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 
(%)
2008 -10.10 -8.73 -2.47 - - 1 0 - 3,525 0.70
2009 22.48 24.28 12.91 - - 2 0 - 5,178 1.07
2010 -0.74 0.75 2.38 - - 2 0 - 5,735 1.26
2011 11.86 13.53 10.70 6.65 4.63 2 0 - 5,446 1.23
2012 9.30 10.92 6.78 4.68 3.76 2 0 - 6,052 1.31
2013 -5.15 -3.72 -2.55 5.33 4.02 1 0 - 4,255 0.94
2014 10.01 11.65 9.05 4.82 3.72 1 0 - 4,446 0.95
2015 1.92 3.45 3.30 4.22 3.41 1 0 - 4,783 1.10
2016 -0.96 0.53 0.25 3.47 3.43 1 100 - 5 0.00
2017 4.05 5.61 5.45 3.14 3.35 13 100 - 19 0.00

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, 2016. 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.

Western Asset - Managed Municipals portfolios are discretionary fixed-income portfolios that seek to maximize current income exempt from regular federal income tax by investing primarily in municipal securities and other investments with similar economic characteristics. The Managed Municipals portfolios normally invest in intermediate-term and long-term municipal securities that have maturities from one to more than thirty years at the time of purchase. They typically focus on investment grade bonds but may invest up to 20% of their assets in below investment grade bonds in order to enhance current income. The Managed Municipals portfolios involve investments in individual municipal securities as well as investments in shares of the Western Asset SMASh Series TF Fund, an open-end investment management company. The composite is comprised of accounts that are separately managed accounts (SMAs) managed in accordance with the strategy with an account minimum of US $250,000.The composite employs a 10% significant cash flow policy. The composite was created on January 1, 2016.

Beginning January 1, 2016, the composite includes only SMA portfolios that are managed in accordance with the Western Asset Managed Municipals strategy. Prior to January 2016, performance results were calculated using Western Asset’s US Municipal Long Composite which was comprised of institutional accounts with a minimum of US $10 million. Net total returns were calculated by reducing the institutional gross-of-fees performance by the highest bundle fee of 1.5%. Western Asset follows substantially the same investment philosophy, strategies and processes in managing SMA Managed Municipal portfolios that it does in managing institutional US Municipal Long portfolios. The performance of Western’s Managed Municipals Composite may vary from the performance of the institutional Municipal Long Composite, especially over shorter time periods and during periods of extraordinary market conditions. The SMA portfolios  are implemented through a combination if individual holdings along with an allocation to a no load mutual fund share created to  allow the portfolio managers to replicate the same  themes and characteristics  of our managed municipal  institutional and mutual fund strategy. Members in the institutional composite typically hold individual securities.

For comparison purposes, composite returns are shown against returns of the Bloomberg Barclays U.S. Municipal 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. 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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