Brian Hess, a co-manager of the $600m (€450m) Legg Mason Brandywine Global Fixed Income Absolute Return Fund, claims value has emerged in the bonds and currencies of Indonesia, Colombia, Thailand and the Philippines – countries to which the fund had little or no exposure at the end of July.
Hess says fears that the US Federal Reserve would wind-down its quantitative easing programme earlier than anticipated were overblown. “We see growth in [US] housing, auto sales and job markets, and based on that, we think the Fed will cut back on its bond purchases,” he adds.
“We see tapering as likely in the fourth quarter but at the same time, because inflation metrics are so far below Fed targets, there is no imminent prospect of rate hikes. It is important to separate the two, as rate hikes are likely to be more disruptive to markets than tapering QE.”
While Hess says the recent panic was a “one-off”, he warns that some emerging markets will “remain under pressure, or come under additional pressure” in 2013, as core yields in general rise.
Founded in 1986, Brandywine runs some $47bn in assets under management – about fourth-fifths of which is in fixed income, with the remainder in equity and balanced strategies.
Platinum members can see how fund selector appetite for emerging market government and corporate bonds has changed over time, by using the Country Data Summary links on the right-hand side of The Data Centre.