Emerging markets debt has been the big fixed income play of the year, with bond fund managers making above-average gains in markets such as Brazil.

The Legg Mason Brandywine Global Opportunistic Fixed Income Fund produced a return of 5.1 per cent (4.4 per cent net of fees) for the 12 months to the end of October, with 40 per cent of its holdings in emerging markets government debt.

The Citigroup World Government Bond Index rose just 1.05 per cent over the same period.

Investment researcher Lonsec has rated the fund ‘highly recommended’ for the fourth year in a row.

Legg Mason Brandywine portfolio manager Arujeet Sareen says his team takes a long-term value approach to fixed income markets. The fund has been able to profit from a number of debt market crises over the past decade.

The fund was a buyer of high quality corporate credit during the financial crisis, when credit spreads blew out. “Fixed income tends to be mean reverting. Corporate bonds did well in the aftermath of the GFC,” Sareen says.

The fund was also a buyer of European government bonds during the European debt crisis in 2012.

And most recently it has been a buyer of emerging markets government bonds.

The fall in commodity prices, the slowdown in China and corruption issues in a number of emerging markets over the past couple of years resulted in a blowout in bond yields in emerging markets.

“Bond yields in Brazil went out to 16 per cent and now they are back to 10 per cent,” Sareen says.

Sareen says a number of markets, such as Brazil, are reporting higher economic growth without high inflation. At the same time there are some promising economic and political reforms.

“We see that situation continuing to play out next year,” he says.

The fund has produced an average return of 7.2 per cent a year over the past five years, compared with the index return of 5.2 per cent over the same period.