Bond investing in today’s ultra-low rate environment has many investors frustrated and many professionals worried. Why? Because once interest rates start going up, the value of existing bonds goes down.
Here are some comments from the manager of a bond fund we use in our mutual fund portfolios … the Loomis Sayles Bond Fund:
Dan Fuss, known as the Warren Buffett of bonds, said his $23 billion Loomis Sayles Bond Fund is sitting on more than 20 percent of cash and cash equivalents, its highest level ever, because he sees scant opportunities in the bond market.
“If we saw a lot of value, we wouldn’t have those reserves,” Fuss told Reuters in an interview.
Fuss, vice chairman and portfolio manager at Loomis Sayles, which oversaw $199.8 billion as of December 31, said the Loomis Sayles Bond portfolio has been building cash since early 2013 and has boosted levels as fixed-income securities have become increasingly pricey.
Despite his high cash position, the fund has done very well.
In 2014, the Loomis Sayles Bond Fund has posted a return of 3.42 percent, outperforming 85 percent of its peers, according to Morningstar data. Over the past 10 years, on an annualized basis it has returned 8.37 percent, surpassing 94 percent of its peers for the same period, according to Morningstar data.
For its five-year record, the Loomis Sayles Bond Fund has posted returns of 14.61 percent, ahead of 85 percent of its peers.