Will Legg Mason's new fund stand out in Asia's lucrative bond market?

Legg Mason, the Baltimore-based money manager that oversees about $950 billion, began selling an Asian bond fund in Hong Kong that seeks to profit from regional economic growth and currency appreciation.

The Western Asset Asian Opportunities Fund targets to beat the HSBC Asian Local Bond Overall Index by an average 1.5 percentage points annually “over the course of a market cycle,” said a company statement. Rajeev De Mello will lead a team at Legg Mason unit Western Asset Management overseeing the fund.

“The Asian bond market is currently the world's fourth-largest and still growing at a rapid rate,” De Mello said in the statement. “Strong economic fundamentals, favorable development in instruments and infrastructure, and structural appreciation of the region's currencies are making local bonds an attractive asset class.”

Investors are moving money out of equities and demanding higher yields on bonds after the worst housing crisis to hit the U.S. since the Great Depression led to falling share prices and over $420 billion in writedowns and losses at financial firms globally. The HSBC Asian Local Bond Overall Index yielded 5.525 percent on July 16, rising from 5.116 percent at the end of 2007.

The fund will invest at least 70 percent of its total assets in debt securities issued by Asian governments and companies as well as derivatives on Asian interest rates and currencies, said a marketing document. Asia is home to the two fastest-growing major economies, China and India.

The fund will focus on local-currency investment grade, dollar investment grade and high-yield credit, and may also buy unrated debt to boost returns, the statement added. Its investments may include asset-backed and mortgage-backed securities, the marketing material said.

Legg Mason began managing Asian local-currency bonds in 1994. Western Asset Management's $508 billion fixed-income assets make it the third-largest U.S. manager of bonds. The Western Asset Asian Opportunities Fund has also been sold in Europe, including the U.K., and Singapore.

What do you think should future Asia-focused funds offer in order to maximize yields and survive the competition in the region?