Brandywine fund scraps income target as yields fall

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Brandywine fund scraps income target as yields fall

A fixed income fund that seeks an income yield of 8 per cent a year is to abandon the target after its managers warned it had become “extremely difficult” to achieve under current market conditions.

Investors in the Legg Mason IF Brandywine Global Income Optimiser fund have been told the gross income yield target of 8 per cent per annum over a rolling three to five year period is to be scrapped from October 6.

The fund will not set a new yield target, instead replacing its target of “maximising” income with the alternative aim of “generating income” for investors.

Legg Mason claimed falling yields had made the target “inappropriate” for the portfolio, which launched in December 2011 and currently has a distribution yield of 5.1 per cent.

“At the fund’s launch the yields available in global high-yield bond markets were in excess of 9 per cent. Therefore, there were sufficient opportunities across fixed income asset classes to target a distribution yield of 8 per cent in a careful manner,” the asset manager said.

“Over time, bond markets have changed significantly and the yield on low-rated bonds has fallen substantially. As a result, under current market conditions, it is extremely difficult to pursue the fund’s policy of seeking to achieve a yield of 8 per cent without materially changing the risk profile of the fund.”

The changes will not affect how the fund is managed.

According to FE Analytics the portfolio has underperformed its IA Sterling Strategic Bond peer group over three years, returning 14.1 per cent against the sector’s 16.4 per cent.

Over one year the fund has fared better, returning 8.8 per cent compared with 6.5 per cent from its peer group.