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By Shannon Zimmerman | 09-07-2012 09:00 AM

McGregor: People Are Overpaying for Income

Oakmark's Clyde McGregor thinks the flight to safety is overdone, and with spreads being compressed so greatly, it's hard to do anything but take on risk in fixed income.

Shannon Zimmerman: For Morningstar, I am Shannon Zimmerman here today with Clyde McGregor of Oakmark Funds and in particular to Oakmark Funds, Oakmark Equity and Income and Oakmark Global. Global is a world-stock fund. We'll talk about that in just a bit, but I want to talk first about Oakmark Equity and Income which is a moderate-allocation fund in our way of categorizing funds. And I want to begin there because there were a couple of news items around that fund. One happened quite a bit earlier this year, and your long time comanager Ed Studzinski retired. So congratulations to him. My question to you is how has the day-to-day management of that fund changed as a result of Ed's departure?

Clyde McGregor: Oh, it's changed a very little. I have assembled two teams, one on the fixed-income side, one on the equities side from our analyst pool to guide me and advise me during this period, as well. So, I have lots of minds to bounce ideas off. Ed and I were more a unit doing that before and would bring in specific analyst oftentimes, but now I have teams that are doing that for me. But the way that the fund is managed has changed very little. There has been same kind of turnover rate that there has been before. The same equity, and the same allocation to value.

Zimmerman: So, the other question I wanted to ask about Ed's departure is what about his replacement? I know the plan is to bring on eventually a co-manager. How is that process going?

McGregor: Well, that's part of the reason for the advisory groups, and it's going. I can't guarantee that we'll announce something by the end of the year, but that's a reasonable expectation. And it's not cast in stone that we'll have one new comanager; it could well be the case there are two. I am 59 1/2. We have to think about succession issues for me, as well, even though I have no intention of doing anything different.

Zimmerman: So, just sort of a speculative question I guess because I imagine it will have to depend on the folks who come in or the person who comes in to be your comanager. Traditionally, the part of the portfolio that has invested in fixed income has been traditionally invested in Treasuries or Treasury Inflation-Protected Securities as it is now. Is this an opportunity maybe to expand the portfolio beyond those asset classes?

McGregor: Well, we wish there was such an opportunity in the marketplace.

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