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June 03, 2003 at 08:00 PM
Daniel J. Fuss, chairman of the Global Investment Committee of Boston’s Loomis, Sayles & Company is a value-oriented, eclectic investor who is not afraid to plunge into foreign currencies and junk debt. His $1.6 billion Loomis Sayles Bond Fund (LSBDX) has racked up a 10.07% average annual total return over the past 10 years–and, for 2003, 14.9% through May 9. Fuss also manages the $149 million Managers Bond Fund (MGFIX), which is oriented more toward higher-quality domestic plays. It is up 6.95% so far in 2003, and has posted an 8.44% average annual return over the past 10 years. Fuss chatted with IA Editorial Director William Glasgall in May.
In both funds, you’re heavily invested in Fannie Mae debt. It’s the currency. In both funds, we have non-U.S. dollar Fannie Mae paper, primarily New Zealand and Australian dollar. We’re also buying intermediate Canadian debt.
You’re pessimistic about the U.S. dollar? We’ve got two big negatives for the dollar: A large and growing current account deficit, which is driven by the trade deficit, and the investment component of the current account deficit, which is getting increasingly negative. We also have the budget deficit. In Canada, the combined [federal and provincial] current account is positive. Their economy looks a little stronger than ours. I worry a lot about Europe. But we have a lot of euros because of the yield differential [with the U.S.] even though it is going away in a huge hurry. The corporate [investing] opportunities have lessened. On the government side, you still have a reasonable yield advantage. Buyers of quality are going to go to Europe. And you also have this mismatch of yield curves going on in New Zealand, Canada, and Australia.
Will U.S. interest rates spike higher once the economy perks up? Rates will move sideways to up, but not for a while. The Fed is sitting on short-term rates, but might force them down again. They will move sideways to up over the next few years. But I don’t see long rates backing up more than 40 or 50 basis points.
