Morningstar Magazine - June/July 2018 - 85

Strategies

Patience Required
A strong fund for those who can ride out volatility.

BEST ID EAS: MAN AGER

Sarah Bush

Loomis Sayles Strategic Income NEZYX

This article is adapted from the fund's Morningstar Global Fund Report dated
March 23, 2018.

Stats 03/31/2018

Loomis Sayles Strategic Income NEZYX lands at the aggressive end of the
multisector-bond Morningstar Category, taking on even more risk than
its intrepid sibling Loomis Sayles Bond LSBRX. For those with the requisite
patience, the team's depth of experience and its success plying an often
contrarian approach support a Morningstar Analyst Rating of Silver.

Morningstar Category
Multisector Bond

Expense Ratio
0.71%

Fee Level
Average

5-Yr Annlzd Return
4.36%

5-Yr % Rank in Cat
11

Morningstar Pillars 03/31/2018
Process
∞ Positive

At the core of this fund's appeal is its knack for uncovering value in beatendown corporates-and even the occasional troubled sovereign. The
team of bond fund legend Dan Fuss, veteran comanagers Elaine Stokes and
Matt Eagan, and recent addition Brian Kennedy is quick to pick up
bargains when credit markets turn rocky. For example, the team piled into
Irish sovereign debt at the worst of that country's troubles in late 2010.
And as a plunge in energy prices drove high-yield losses starting in mid-2014,
the team added to names that it thought most likely to survive, which
boosted returns in 2016 and 2017. Such moves have helped the fund to a
6.3% 10-year annualized gain through February that tops roughly 80% of its
distinct peers.

Performance
∞ Positive

People
∞ Positive

Parent
¶ Neutral

Price
¶ Neutral

Growth of 10K 03/31/2018

$12K
Morningstar US Core Bond TR
11
10.93
10.41
10
Loomis Sayles Strategic Income

9
8

04/2015

04/2016

04/2017

Fixed Income Style Box 02/28/2018

High

Interest Rate Sensitivity

Morningstar Ratings 03/31/2018

Data surveyed
from the
fund company.

Low

Mid

Credit Quality

These gains have come with a hefty dose of risk. At its peak in late 2015,
the fund's equity stake checked in at more than 20% of assets. Citing tight
valuations and the potential for geopolitical risk to upend global risk
markets, the team had slashed this position to roughly 7% as of February,
while building cash to 20% of assets. Still, the fund's equity stake stood
out in a category where two thirds of competitors have little or no exposure
to common stock. Meanwhile, the fund continued to dedicate close
to a third of assets to junk bonds and featured a 21% exposure to non-U.S.dollar currencies.

Morningstar Analyst Rating
*

Ltd

Mod

Period

Mstar
Return

Mstar
Risk

Mstar
Rating

3-Yr

Average

High

QQQ

5-Yr

Above Avg High

QQQQ

10-Yr

Above Avg High

QQQQ
QQQQ

Overall Rating

Ext

Top 5 Sectors 02/28/2018

Not surprisingly, the fund is vulnerable to sharp losses during periods of
volatility in the credit and currency markets. Indeed, the fund fell 12% between
September 2014 and January 2016 as its junk-bond holdings and commoditysensitive currencies drove losses. Still, for those comfortable with the fund's
volatility, it remains a strong choice. K
Sarah Bush is director, fixed-income strategies, with Morningstar Research Services.

Sectors

■ Fund

❙ Category Average

Corporate Bond

32.92

Non-U.S. Government
U.S. Treasury

14.19

8.14
5.35

42.33

6.94
1.45 3.87

Convertible
Bank Loan

0.49 1.29
0%

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