Loomis Sayles’ Gaffney Looks at High-Risk Environment Investing

We are in “a market in transition,” says Kathleen Gaffney, co-portfolio manager of the $18.58 billion Loomis Sayles Bond Fund (LSBDX for the institutional shares), “with slow growth…and yields at record lows.” However, she noted Wednesday at a lunch briefing provided by fund conglomerate Natixis Global Asset Management in New York, in the “market today, [there are] some tremendous opportunities.” Citing the ‘uncertain environment,” and with yields on the “10-year [bond] inside 3%,” Gaffney says she sees opportunity in “investment-grade and high-yield bonds,” especially the top rating tier of high-yield bonds.   

Companies have “cash on their balance sheets,” and are in “better shape than they’ve been in decades,” Gaffney says. While investment grade bonds are “attractive, but have limited upside,” she says, high yield bonds in the “upper tier, BB and B” credits, are a “great long-term value—really, the sweet spot in the market.”

“Clipping coupons is attractive in a high-risk environment,” Gaffney says. But while she says that risk of rising rates is not a short-term concern, she cautions that this isn’t the time to be buying the longest maturities. So where does she think there’s potential for appreciation? “Exposure on the currency side works to our advantage short term and long term…If [we are] facing rising rates, we’ve got to be smart about how we’re investing. Currencies have the ability to appreciate in rising-rate environments.”

On the Equity Side