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By Sarah Bush | 12-04-2012 11:00 AM

Searching for a Solution to Low Rates

FPA's Tom Atteberry says interest rates are at unsustainable levels and offers his strategies and opportunities for managing a portfolio in an uncertain bond market.

Sarah Bush: Hello, I'm Sarah Bush, fund analyst with Morningstar, and today I'm here with Tom Atteberry, portfolio manager from FPA New Income.

Thank you very much joining us today, Tom.

Tom Atteberry: Appreciate you having me today, thank you.

Bush: So, we have a variety of stuff to talk about, but I thought to start with maybe you talk a little bit about your approach at FPA New Income, and I know you've changed your benchmark recently and talked a lot about absolute returns. It's a little different from some of the benchmark-oriented managers in our space. So could you talk a little bit about that?

Atteberry: It's an outgrowth of what the fund has always strived for. The first thing it always strived for is to have that absolute positive return in a 12-month period. So, we looked at that and wanted to expand upon it and said "What do investors really need to focus on and try to accomplish over a long term?" And we went from taking just the absolute return on a 12-month period, which we've accomplished it since we started doing it in July of '84, to one of, "What's the real objective?"

Well, we need to at least get to CPI, so we could protect the capital? And then could we get CPI, say, plus 100? This is a bond fund. It's a more conservative investment. So, could the return over, say, a five-year period be CPI plus 100 basis points or 1%. So if you had CPI of 3%, then you were looking to have the portfolio producing annualized return on a five-year period of 4%.

And so we said, "OK, this is a conservative approach to protecting capital and modestly growing capital on a real basis."

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