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| Kathleen Gaffney |
Loomis, Sayles & Co. plans to add to its non-dollar fixed-income holdings on the view that spreads on U.S. securities are too narrow and the potential for currency appreciation makes foreign bonds a better buy. Kathleen Gaffney, portfolio manager of the $2.2 billion Loomis Bond Fund, says the fund maintains a duration barbell, with a majority of its assets in short, non-dollar investments. Roughly 55% of the fund is held in foreign assets and Gaffney says she will most likely increase the non-dollar exposure this year to pick up extra yield, although she declined to specify by how much and through what purchases.
Gaffney says that with the Federal Reserve apparently on hold with regard to raising interest rates, the fund has moved down the quality spectrum. At the same time, Gaffney says she is aware that rates are bottoming and most likely will rise. In response to that expectation and to create a cushion if rates don't pick up, the fund uses a maturity barbell, with 40% of its assets in long corporates and another 40% in short, high-quality, non-dollar paper.
The foreign allocation includes sovereign bonds from the likes of Canada, the U.K. and Sweden. Another 15% of the fund is held in emerging market sovereign and corporate debt, with the heaviest investments in Latin America, led by Brazil and including Mexico. Gaffney views Latin America, and its natural resource-based economy, as a strong growth area and expects the dollar will continue to weaken against its southern neighbors.
On the U.S. side, the fund holds an even mix of investment-grade and high-yield corporates. The investment-grade assets are concentrated mostly in triple-Bs, with 5% in triple-A notes. She adds the fund invests in cyclical sectors such as paper, chemicals and airlines, with the belief that an economic recovery should help these areas gain traction. Loomis holds notes of Qwest Communications,AES Corp., Calpine Corp., Lucent Technologies and Nortel Networks.
The fund has an average duration of 6.5 years, compared to its benchmark, the Lehman Brothers Government Credit Index, which is at 5.5 years.
