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Loomis Sayles Floats In Late

Plus, Perkins tries its hand at a global all-cap strategy and more.

Morningstar Fund Analysts, 10/06/2011

Investor interest in bank-loan funds may have ebbed over the past few months, but that's not stopping Loomis Sayles.

Launched this week, Loomis Sayles Senior Floating Rate and Fixed Income (LSFYX) is the eighth bank-loan fund opened in 2011. Starting in late 2010, concerns about rising interest rates and demand for high yield created a favorable environment for floating-rate loans, which readjust periodically and are relatively insensitive to interest-rate moves. Within the floating-rate universe, bank-loan funds saw assets grow to $55 billion as of Sept. 30, 2011, from $36 billion Sept. 30, 2010, according to Morningstar data.

But with the Fed committed to keeping short-term rates low through mid-2013, demand for floating-rate loans has started to fade. In August, bank-loan funds saw net outflows of roughly $10 billion. And because bank loans are issued by companies with a lot of debt on their balance sheets, these funds can struggle when fears about the economy's health build, as they have recently. Funds in Morningstar's bank-loan category dropped between 3% and 6% in August, for instance, although they held up better in September.

Credit concerns and stubbornly low short-term rates may temper investors' appetite for bank-loan funds for now, but some diversified-bond managers are reporting that bank loans look more attractive after the recent sell-off.

Loomis Sayles' new fund could make for a compelling entrant, especially considering the experienced corporate-credit research team that backs Dan Fuss and team's credit-heavy Loomis Sayles Bond LSBRX. This fund also has the flexibility to shift into other fixed-income sectors (up to 35% of assets) when the team finds better value elsewhere, although it will take some time to see just how liberally it will employ this measure.

Perkins Tries Another Fund Launch
Perkins Investment Management will be launching an all-cap global fund in December, though its launches in recent years have failed to gain the traction that its small- and mid-cap funds have enjoyed.

While Perkins Select Value will enable Perkins to use its successful small- and mid-cap strategies across the world's equity markets, it has tough acts to follow. The annualized returns of Perkins Small Cap Value JSCVX and Perkins Mid Cap Value JMIVX have handily beaten the averages for their peers. What makes the Perkins strategy distinctive is that these returns were also made with low volatility. The funds' success has driven up assets, and the small-cap fund is closed to new investors and the mid-cap fund is closed to new retail investment through the fund company.

Since 2008, Perkins, which is majority owned by Janus Capital, has launched two value funds. The moderate-allocation and large-cap funds employ the same basic approach of their older siblings, but, thus far, neither has assets above $125 million. The greater a fund's asset base, the more its economies of scale can drive down its costs. While neither fund is expensive, there are much cheaper active funds in their respective categories.

Morningstar fund analysts cover more than 1,700 mutual funds and write regular commentary covering fund industry news, fund investing trends, picks, portfolio planning, international investing, and more.

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