Brandywine Asset Management July Letter

Performance Summary

Brandywine’s Symphony globally-diversified investment program lost –3.09% in July and the aggressively-traded Brandywine Symphony Preferred Fund dropped –12.17%. Year-to-date returns are –3.00% and –12.41% , respectively.


Controlling Losses Presents Timely Investment Opportunity

Since the end of the first quarter, Brandywine’s Symphony Program has suffered its worst peak-to-trough decline since the start of trading in July 2011. On a daily basis (as opposed to the month-end data usually reported), performance peaked on March 15, 2013 and troughed on July 31, 2013. During that 98 (trading) day period, the program dropped a total of -8.67%. Let’s look at how this compares to expectations based on our tested historical performance.

In the historical simulations for Brandywine’s Symphony Program covering the period January 1999 through June 2011 (immediately prior to the start of actual trading in the program), there were 11 peak-to-trough drawdowns (looking at daily data, not just month-end) that exceeded 8%. This amounts to one such occurrence roughly every 14 months. Based on this data, our current drawdown was a bit overdue, having arrived in our 25th month of actual trading. But what this points out is that, although every drawdown is unwelcome, they will occur, and this current drawdown is right in line with historical expectations.

The key is in controlling drawdowns; limiting their impact so when the turnaround occurs, new performance highs can be quickly achieved. (As Mr. Dever states in the final chapter of his best-selling book, “Drawdowns are the greatest impediment to high returns and are the true measure of risk”). In that regard Brandywine stacks up quite well against the most popular position in most people’s portfolios, the S&P 500. For example, despite being the largest we have incurred, the current drawdown is less than 1/6 that of the S&P 500 decline in 2007 – 2009 and less than 1/5 that of the S&P 500 decline in 2000 – 2002. Brandywine’s Symphony Program controls risk in the following ways

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