Legg Mason launches actively managed core fixed income ETF

Oct 8th, 2018 | By | Category: Fixed Income

Legg Mason has unveiled the Western Asset Total Return ETF (WBND US) on Nasdaq Exchange. The actively managed core bond fund, which is the firm’s first fixed income ETF, seeks total return through a largely unconstrained investment process.

James W. Hirschmann III, Chief Executive Officer of Western Asset Management.

James W. Hirschmann III, Chief Executive Officer of Western Asset Management.

The portfolio is sub-advised by Western Asset Management, a Legg Mason affiliate and globally integrated fixed income manager.

“We are excited to launch the first fixed-income ETF in the Legg Mason line up,” said James W. Hirschmann III, Chief Executive Officer of Western Asset Management.

“Active managers can invest in a wider universe of securities than the benchmark, trade opportunistically as market conditions change, and provide risk and defensive management.

“This fund seeks to offer investors a core strategy with flexibility to take advantage of various taxable fixed-income maturities and sectors. With our 45-year history of delivering for investors in all market conditions, we believe this fund has potential to deliver attractive total returns.”

The performance of the fund is benchmarked against the Bloomberg Barclays US Aggregate Index which measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-backed securities, asset-backed securities, and commercial MBS.

According to Western, the fund will pursue active management across duration, sector, and security selection which allows greater flexibility to respond to dynamic market conditions.

The managers utilize both top-down and bottom-up approaches to identify attractive investment opportunities and manage risk. The fund may include significant exposure to out of benchmark sectors – high yield, inflation-linked bonds, bank loans, and non-US bonds, amongst others – to boost performance and enhance diversification. Derivatives may also be used within the portfolio.

While this initially smells like a purely unconstrained strategy, WBND does have some restrictions.

The fund will not invest more than 20% of its portfolio in asset-backed securities or non-agency or non-government sponsored mortgage-backed securities, as well as not more than 10% of the fund’s total assets in collateralized debt obligations. The fund will also not invest more than 20% of its total assets in junior loans (debt instruments that are unsecured and subordinated) and a maximum of 30% of the portfolio may be invested in high yield securities.

Although the fund may invest in securities of any maturity, the fund expects its effective duration to fall between two and nine years.

WBND comes with an expense ratio of 0.45%. Income will be distributed to investors on a monthly schedule.

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