Morningstar Advisor - December 2010/January 2011 - (Page 20)
Scaring the Swiss
Dan Fuss Vice chairman and portfolio manager, Loomis, Sayles & Co Asked Sept. 29. 1 Agree or disagree: The economy is on the mend.
2 Are bonds’ best days behind them?
3 Biggest current threat to bond investors—rising interest rates or credit defaults?
Neither. Eventually, it’s rising interest rates, and it doesn’t necessarily threaten. It depends how you deal with it. Defaults are always a big problem. They are just not here in the present. As you go forward into even this current cycle, it’s going to be more of a problem in the low-grade area because the new financing is done with lousy indentures to protect the issuer. Good for the issuer, bad for the investor. It happens every cycle, and it’s happening again.
4 How concerned are you about inflation?
Very, with a lag. The driver underneath inflation is, actually, rising rates. It’s not the other way around. The rising rates become a component of the rise in inflation.
5 What sectors are offering the most values?
There are a few, but they scare the bejesus out of people. I said one on national TV yesterday. I never should have. But by now, everyone will have commented on it. The periphery of Europe and government debt—not corporate, corporate is too pricy. Ireland. You want to upset people as far away as Zurich, say that on national TV. You get e-mails right away, and it was nighttime over there.
6 What about opportunities in the United States?
There is no outstandingly cheap area. Investment-grade is certainly cheap relative to Treasuries. So is everything else, because Treasuries are overpriced. But when you adjust for that and look at the average dollar price on a corporate bond, say, roughly 110, it’s not a good thing.
7 Are you concerned about the amount of new money flowing into your funds?
Well, no, because not a lot is. But I am watching the amount of money going into ETFs. ETFs have a lot of good aspects to them, but it’s a very dangerous style to invest if you get into a narrow mandate. In investment-grade corporates or in common stocks, it’s all right. In high-yield, in emerging-market local pay, the emerging-market anything pay, those are narrow areas; you cannot have a good liquidity proxy worked in there. So when the outflows come, talk to any sponsor, what do you do? Well, you tell the investment bank to sell them. To who? Those are cash bonds.
8 An investor starving for yield shows up at your doorstep. Where do you send him?
Down the street. I get this all the time. What do I do with my 3-month CD? Don’t worry. You have the advantage of not having much taxable income.
9 What is the biggest investing mistake you ever made?
Oh, God. There are thousands.
10 How about one?
I learned a bad habit. Early on, I was often too late. Now, I’m too early.
20 Morningstar Advisor December/January 2011
Table of Contents for the Digital Edition of Morningstar Advisor - December 2010/January 2011
Morningstar Advisor - December 2010/january 2011
New on morningstaradvisor.com
Letter From the Editor
What Strategies Do You Use to Help Retirees Hedge Against Longevity Risk?
Four Picks for the Present
Scaring the Swiss
Tech Is the Apple of Managers’ Eyes
How to Read an Sec Filing
A Strategy That Loves Performance Chasers
Things Fall Apart, Even in Industrials
A Future in Questions, Not Answers
Research Over Chocolates
Creating Portfolios That Confront Retirement’s Risks
Building in-Retirement Portfolios to Last
On the Lookout for Guaranteed Income Streams
What Fires Up Mairs & Power
Aiming at Alternatives
Stuff Your Stocking with Out-of-Favor Bargains
Stable, High Yields (No Bonds Included)
Mutural Fund Analyst Picks
50 Most Popular ETFs
Undervalued Stocks with Wide Moats
Twelve Bee, Huh?
Morningstar Advisor - December 2010/January 2011