PHILADELPHIA, Sept. 24, 2015 /PRNewswire/ -- Increasingly U.S. investors are seeking to enhance yield and diversify their portfolios by looking beyond their home markets. Emerging markets credit debt (EMD) can offer attractive yields, but recent market turmoil illustrates the formidable challenges and risks investors potentially face.

"Risks and rewards are amplified in EMD credit compared to more traditional credit sectors," said Gary Herbert, head of the Global Credit team at Brandywine Global, a subsidiary of Legg Mason. "Investors can benefit from higher yields and achieve diversification with EMD credit, but we recommend that investors choose carefully the methods by which they access this attractive sector."

Brandywine Global's recent white paper, Global High Yield Investing: Considering Opportunity and Risk in Emerging Markets, argues that EMD credit is best accessed through a professional manager with a broad credit universe, flexible allocation to emerging markets, and a robust top-down valuation framework. These experienced managers can help investors identify the solid fundamentals and attractive valuations that are essential to success in the EMD credit sector.

This approach contrasts the predominant methods by which both individual and institutional investors gain access to EMD credit: buying a dedicated EMD product, effectively making a full allocation to the sector; or investing in a core plus-style fixed income fund that maintains largely static allocations to emerging markets, adjusting on the margins.

"Static allocations miss opportunities created by large valuation shifts that historically have emerged between traditional, developed market credit and EMD credit," Mr. Herbert said. "That shift is happening as we speak. We're reaching the magnitude of valuation change between developed market credit and emerging market local credit that only last occurred in the 1990s."

While this may be a good time to consider EMD credit, given their broad scope and specialized nuances, emerging markets can be difficult for individual investors to navigate.

Relying upon dedicated EMD products or core plus-style products can cost credit investors significant amounts of asset allocation alpha. Active credit managers are not equally successful, of course, as Brandywine Global's analysis shows.

"As we detail in our recent paper, we believe the significant alpha being achieved by top global credit managers largely is the result of asset allocation decisions related to EMD and other higher-yielding segments," Mr. Herbert observed. "We also believe, depending on the environment, that value can be easier to find between similar sectors, rather than trying to find it between securities in the same sector."

"Ultimately EMD credit will become an advantageous market again, but investors have to be knowledgeable, and wary."

About Gary Herbert

Gerhardt (Gary) P. Herbert, CFA is the head of Global Credit at Brandywine Global and a portfolio manager in the Global Fixed Income groupMr. Herbert joined Brandywine Global in March 2010 and has more than 25 years of high yield experience. Previously he was a managing director, portfolio manager with Guggenheim Partners, LLC (2009-2010); a managing director, portfolio manager with Dreman Value Management, LLC (2007-2009); and an executive director, portfolio manager (1999-2007) and associate (1994-1998) with Morgan Stanley Investment Management. Mr. Herbert earned a M.B.A. with honors from Columbia University, and a Bachelor's degree from Villanova University. He holds a Chartered Financial Analyst certification and is a member of the Philadelphia Scholars Program Investment Committee.

About Brandywine Global

Founded in 1986, Brandywine Global Investment Management offers a broad array of fixed income, equity, and balanced strategies that invest across global markets. As of June 30, 2015, Brandywine Global manages $67.8 billion in assets. The firm is a wholly owned, independently operated subsidiary of Legg Mason, Inc. (NYSE: LM), and is headquartered in Philadelphia with an office in San Francisco. Brandywine Global also operates two affiliated companies with offices in Singapore1 and London2.

1. Brandywine Global Investment Management (Asia) Pte. Ltd.;

2. Brandywine Global Investment Management (Europe) Limited is authorized and regulated by the Financial Conduct Authority (the "FCA"). (FRN 472774). Registered in England and Wales, No. 06324517

About Legg Mason

Legg Mason is a global asset management firm with $681 billion in assets under management as of August 31, 2015. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).

All investments involve risk, including loss of principal. Past performance is no guarantee of future results.

Fixed income securities involve risk, including possible loss of principal. These securities are subject to interest rate, credit, inflation, and reinvestment risk. As interest rates rise, the value of fixed income securities falls. High yield bonds possess greater price volatility, illiquidity, and possibility of default. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Active management and diversification do not ensure gains or protect against market declines.

The views expressed are those of the portfolio managers as of the date indicated, are subject to change, and may differ from the views of other portfolio managers or the firm as a whole. These opinions are not intended to be a forecast of future events, a guarantee of future results, or investment advice. All data referenced are from sources deemed to be reliable but cannot be guaranteed. Securities and sectors referenced should not be construed as a solicitation or recommendation or be used as the sole basis for any investment decision.

INVESTMENT PRODUCTS: NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

©2015 Legg Mason Investor Services, LLC, member FINRA, SIPC. Brandywine Global Investment Management, LLC and Legg Mason Investor Services, LLC, are subsidiaries of Legg Mason, Inc.

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SOURCE Legg Mason, Inc.

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