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By Miriam Sjoblom, CFA | 05-02-2013 12:00 PM

Gaffney: Get Away From Market Risk Now

Given valuations and where interest rates are headed, you don't want a lot of market risk now, says Eaton Vance Bond manager Kathleen Gaffney.

Miriam Sjoblom: Hi. I’m Miriam Sjoblom, associate director of fund research at Morningstar, and I’m here today with Kathleen Gaffney, who is a portfolio manager at Eaton Vance.

Kathleen, thanks so much for joining us. You recently made a big career move late last year after being at Loomis Sayles for nearly three decades, and comanaging Loomis Sayles Bond for many years. You joined Eaton Vance. So we appreciate you coming to check in with us after making that big transition.

Kathleen Gaffney: Thanks, Miriam.

Sjoblom: So maybe to start out, you launched a new bond fund, Eaton Vance Bond, early this year. I think what a lot of our viewers would be interested in hearing is, what kind of strategy can investors expect from that fund? What might be some similarities or maybe some differences with Loomis Sayles Bond?

Gaffney: It’s a multisector strategy, and the two parameters on it are a maximum of 35% below investment-grade and 20% in common stocks. So other than that, it's pretty much go-anywhere, which is interesting in this market environment, where people are looking for yield and income, to be able to find good opportunities across the markets. It's a similar strategy to what I’ve always down, but I'm working with a new team of analysts and traders, which I think will bring a lot of new ideas into the fund.

Sjoblom: One thing Eaton Vance is known for is its floating-rate loan group. Do you expect loans may play a bigger role in this portfolio?

Gaffney: We are tapping into the loan group, and I started the fund with about 10% in floating-rate [assets]. There has been such a demand in the market for income and yield, loans have participated in that. So I’ve actually been cutting back on the exposure. I think it’s a great asset class for the medium term, but the market, primarily the new-issue market in particular, looks a little bit overheated, in that some of the advantages in the loan market in terms of LIBOR floors and the ability to hold on to that income, we’re losing that with a number of repricings. So it’s still there, but a little bit less exposure right now.

Sjoblom: You talked about valuations in the loan market, and this is something I think bond investors are dealing with across sectors after tremendous spread compression over the course of the last year. High yield is an area where you’ve traditionally invested. What do you think of valuations in the high-yield market today?

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