e-fundresearch.com: When did you take over the responsibility of managing the Legg Mason ClearBridge Tactical Dividend Income Fund?
Peter Vanderlee: I joined the Fund at its inception in January 2012.
e-fundresearch.com: What is the current size of the fund?
Peter Vanderlee: As of 12/31/2013, AUM for the TDI strategy was $1.9B. The fund itself is $3.83m in size.
e-fundresearch.com: Do you also manage other funds or mandates?
Peter Vanderlee: Along with the Legg Mason ClearBridge Tactical Dividend Income Fund, I co-manage equity income strategies including ClearBridge’s Equity Income and Energy MLP funds.
e-fundresearch.com: What is the total amount of assets you manage currently?
Peter Vanderlee: Total AUM: $20.8B
e-fundresearch.com: How long have you been in the business as a fund manager?
Peter Vanderlee: I have 14 years of investment management experience, and was officially named Portfolio Manager at the end of 2004.
e-fundresearch.com: What is the general environment for US dividend strategies like at the moment? Is there still some potential left in the traditional dividend sectors (e.g. utilities/REITs) or should investors go elsewhere to find attractive yields?
Peter Vanderlee: Investors are starved for yield and the bond market does not provide much income at all currently. Meanwhile, there are 76 million people, known as Baby Boomers, who are approaching or in retirement where they are in need of an investment trifecta: 1) income to supplement their (lack of) savings, 2) income growth to stay ahead of inflation and 3) capital preservation as their ability to take on risk is diminished in retirement. The TDI strategy is well positioned to be part of the solution.
e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
Peter Vanderlee: The investment approach is primarily based on bottom-up stock selection, but with a top-down thematic overlay incorporating our views on sectors and relevant asset classes, helping to construct a diversified portfolio.
We screen over 1000 securities appropriate for our mandate seeking companies with sound or improving balance sheets and strong competitive positions that can ensure dividend stability and growth. We typically look at securities in the top half of dividend payers in terms of yield.
For the securities that filter through the screening process, we examine the history, sustainability and growth prospects for dividends, with a strong focus on each company’s underlying competitive dynamics and free cash flow generation potential. We also examine capital structure, management’s capital allocation acumen, and credit risks before pulling the trigger on a position.
Stock selection and position sizing are driven by the team’s conviction and assessment of downside risk, as well as the liquidity characteristics of securities. Typically, the resulting portfolio is diversified with a conservative quality bias consisting of 75-125 holdings and has significant differentiation from the benchmark.
Finally, we continuously monitor the portfolio, assessing the risk/reward impact of any material changes in stock price, payouts, and balance sheet health, as well as the underlying business fundamentals of the companies and/or their industries.
e-fundresearch.com: Is the investment decision process generally more rule oriented, or more discretionary? Which steps in your decision process do you consider to be the most important?
Peter Vanderlee: Our investment process is rigid in that each step is critical for a positive outcome in terms of portfolio construction and performance, but provides room for flexibility depending on market conditions. This is primarily found in our top-down overlay process, which allows us to utilize our macro views to allocate amongst asset classes and sectors depending on which are most/least attractive. We incorporate a relative value framework to analyze valuations, yield spreads, leverage, and liquidity, among other factors.
e-fundresearch.com: When it comes to “fighting” for appropriate dividend payments: To what extent do you engage in shareholder activism?
Peter Vanderlee: I meet with company management teams on a regular basis and discuss the capital allocation framework that, consistent with our company analysis, is most appropriate for the stock we own. In quite a few cases our analysis points to a stronger dividend as many corporations in the US have strong balance sheets, with lots of cash available, generate copious amounts of free cash flow and yet still have overly conservative dividend payout ratios. I have noted a change in behavior on behalf of US management teams where this message is being headed as evidenced by substantial dividend increases we are witnessing in the US. I do expect this trend to continue for quite a while which bodes well for the TDI strategy.
e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
Peter Vanderlee: The Fund’s benchmark is the Dow Jones U.S. Select Dividend Index, which is comprised of 100 U.S. stocks, based almost entirely on dividend yield and dividend history. The Fund’s primary goal is to provide a high current income, with secondary emphasis on capital appreciation over time. Though the Fund holds many securities in the benchmark, we also invest in Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs), along with preferred and convertible securities, to provide greater diversification, higher yield and significant tax benefits for our clients.
e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?
Composite performance (gross) is in the table below. Please note that the current management team joined the TDI strategy in January 2012. The TDI strategy has outperformed its benchmark on an annualized basis by +51 bps since Peter joined the strategy. 
Notes to editors
About Legg Mason Global Asset Management
Legg Mason is a global asset management firm with assets under management of $680 billion as of January 31, 2014. The Company provides active asset management in many major investment centres throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).
These are the views of Peter Vanderlee, one of the co-portfolio Managers of the Legg Mason ClearBridge Tactial Dividend Income Fund.
Important Information relating to the fund
This is a sub-fund of Legg Mason Global Funds plc, an umbrella fund with segregated liability between sub-funds, established as an open-ended investment company with variable capital, authorised in Ireland by the Central Bank of Ireland as an undertaking for collective investment in transferable securities
All investments involve risk, including the possible loss of principal. Past performance is no guide to future returns and may not be repeated.
This information has been prepared from sources believed reliable but is not guaranteed by Legg Mason and is not a complete summary or statement of all available data.
Individual securities mentioned are intended as examples of portfolio holdings and are not intended as buy or sell recommendations. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation or needs of individual investors. The value of investments and the income from them can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. This fund invests primarily in one region or country, which means that it is more sensitive to local economic, market, political or regulatory events than other funds that invest in a broader range of regions. The fund invests in fewer companies than other funds which invest in shares usually do. This means that the fund does not spread its risk as widely as other funds and will therefore be affected more if an individual company has significant losses. Before investing you should read the key investor information document and the prospectus, which describe the sub-fund's full objective and risk factors. These and other relevant documents may be obtained in a number of languages at BNY Mellon Investment Servicing (International) Limited, Riverside Two, Sir John Rogerson’s Quay, Grand Canal Dock, Dublin 2, Ireland, www.leggmasonglobal.com and the registered office. Issued and approved by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorised and regulated by the Financial Conduct Authority. This information is for use by Professional Clients and Eligible Counterparties. It is not aimed at, or for use by, Retail Clients.
