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By Christine Benz | 04-08-2010 08:00 AM

Expand Your Opportunity Set with This World Bond Pick

Day 4: Strong corporate and sovereign research make this world bond fund one to watch.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. You have until April 15 to fund an IRA for the 2009 tax year, so all this week I'll be talking to some of Morningstar's experts to get their best ideas for funding an IRA. I'm here today with Miriam Sjoblom. Miriam is one of our lead fixed income analysts, and she's also associate director of fund analysis for Morningstar. Miriam, thanks for being here.

Miriam Sjoblom: Glad to be here, Christine.

Benz: Not surprisingly, your best idea, Miriam, is a bond pick. Tell us what it is and why you like it.

Sjoblom: I'm picking Loomis Sayles Global Bond. It's in our world bond category, and it has an overseas bond focus and currency focus.

Benz: About how much is in foreign-denominated bonds versus U.S. bonds?

Sjoblom: It has about a third in U.S. dollar-denominated bonds as opposed to two-thirds in non-dollar.

Benz: I know one thing that you like about Loomis Sayles as a whole is the management team here and also some of the analytic resources that they draw upon. Can you talk about what you think makes Loomis Sayles so strong from that standpoint?

Sjoblom: Sure. They're well known for their corporate research capabilities, which Dan Foss and the team at Loomis Sayles Bond have taken advantage of for years. And this team, they also own corporates in the fund. About a third of the fund is in corporates. So they also get to take advantage of those same resources. But they also have a very good sovereign and quantitative analyst team that definitely comes into play here.

Benz: One question that comes to mind is why one might choose this fund versus the big better-known fund, Loomis Sayles Bond, which also has a sleeve of foreign, maybe especially emerging markets bond. Why would one look at this fund versus that better-known fund?

Sjoblom: The Loomis Sayles Bond Fund is much more aggressive than this fund on the credit risk front. And as we saw in 2008, credit risk was really the dominant factor in the market, and the Loomis Sayles Bond Fund really got hurt that year. It lost about 22%. This fund was lighter on the credit risk; it lost about 9%. So still painful, but not nearly as painful.

Benz: Another related question, Miriam--and a lot of investors I know have been grappling with this question. Why would you want non-dollar exposure in your portfolio? Why do you think it's an important source of diversification for investors?

Sjoblom: Plenty of fund managers here talk about the next decade for bonds not rivaling the previous, really outstanding, decade for bonds. One of the big issues is the Treasury and its growing deficit, growing financing needs. Just this year the U.S. Treasury plans to issue anywhere from $1.5 trillion to $2 trillion in Treasuries. That's not exactly a good factor for Treasury investors. So now's a good time to consider opportunities, just not narrowing your opportunity set.

Benz: Right. So just another source of diversification for portfolios. Miriam, thanks so much. Sounds like an interesting pick.

Sjoblom: Thank you, Christine.

Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.

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