FA Magazine July/August 2022 | Page 66

The fund ’ s Class I shares have been a top-quartile performer in Morningstar ’ s high-yield bond category during the three- and five-year periods through June 15 , finishing fourth overall in the three-year period among its category peers . Even better , Morningstar ranked it the best performer among 566 competing funds during the five-year period . Elsewhere , Lipper named the fund ’ s IS share class the best among highyield bond funds based on risk-adjusted performance for the five-year period ending November 30 , 2021 . ( The IS share class , which is aimed at pensions , endowments and corporate 401 ( k ) plans , has a slightly lower expense ratio and slightly better performance numbers than the I share class available to investors on brokerage platforms .)
Part of the fund ’ s success lies in its nimble approach , including the managers ’ ability to step into investment-grade bond territory when conditions call for it . The non-investment-grade ( or highyield debt ) category comprises bonds issued by companies deemed to have a greater risk of defaulting on their interest payments or principal . Non-investment-grade bonds are rated lower than “ BBB- ” or “ Baa3 ” by the major rating agencies . Because they ’ re considered riskier than investment-grade bonds , they have to pay higher coupons to attract investors . The higher the risk , the greater the yield .
According to a report by Morningstar analyst Mike Mulach , the Brandywine-
Global High Yield Fund responded to the 2019 credit rally by raising its investment-grade bond exposure to 20 % by the end of that year , its highest level since the strategy ’ s inception . That positioning helped the fund weather the worst of the Covid pandemic fallout in the first quarter of 2020 , and McClain and Zox upped the fund ’ s investment-grade exposure even further by quarter ’ s end .
But after the fund took advantage of the tailwinds from the Fed ’ s massive bond-buying program and the gradual economic recovery during the second half of 2020 , Mulach noted that valuation concerns caused the management team to change course by allocating out of higher-rated , longer-duration bonds and into lower-rated bonds with shorter maturities and higher yields .
Part of the fund ’ s success lies in its nimble approach , including the managers ’ ability to step into investmentgrade bond territory when conditions call for it .
Manager John McClain Age 40
Professional Background He is a portfolio manager for Brandywine Global ’ s high-yield and corporate credit strategies . He previously was a portfolio manager with Diamond Hill Capital Management . Before that , he worked at Standard Life Investments and Nationwide Mutual Insurance .
Outside Interests Spending time with his wife and two daughters . He ’ s an avid marathon runner , as well as an avid bourbon enthusiast .
Offsetting Risk
The key risk components in fixedincome portfolios are interest rate and credit risk . And as interest rates began rising in 2022 , McClain and Zox saw a chance to profit from it by taking on more interest rate risk . “ But to offset that we took on less credit risk , so we started selling down the riskiest portion of the high-yield space , which is the triple-C part of the market ,” McClain says . “ Those are the types of business where if we went into a recession or had a material economic slowdown they would be the first to feel it .”
By the end of May , about 85 % of the fund ’ s credit quality allocation resided in “ BB- ” and “ B ” rated bonds .
The fund ’ s managers say they seek an additional margin of safety for their
Manager Bill Zox Age 54
Professional Background He is a portfolio manager for Brandywine Global ’ s high-yield and corporate credit strategies . Before that , he was a portfolio manager with Diamond Hill Capital Management , and a tax partner at Schottenstein , Zox & Dunn , LPA .
Outside Interests Enjoys being an empty nester with his wife and visiting his two daughters in Maine and Massachusetts . He has a love-hate relationship with golf .
Portfolio Statistics
Number Of Holdings
124
Average Coupon
5.83 %
Average Maturity
5.90 yrs
Average Duration
3.84 yrs
Std . Dev Fund / Category
9.63 / 9.25
Turnover Ratio
151 %
Expense Ratio
0.67 %
Portfolio stats and standard deviation ( three-year period ) as of 5 / 31 / 22 . Sources : Eaton Vance and Morningstar .
62 | FINANCIAL ADVISOR MAGAZINE | JULY / AUGUST 2022 WWW . FA-MAG . COM