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Risk Has Paid Off for This Bond Fund

With more-reasonable fees and an impressive record, the recently upgraded Loomis Sayles Core Plus Bond is an attractive option for risk-takers.


Sarah Bush: During December, we upgraded Loomis Sayles Core Plus Bond (NERNX) to Gold from Silver. A lot of investors are familiar with Loomis Sayles and the Dan Fuss team that runs Loomis Sayles Bond. This is actually a different team that has a lot going for it. Peter Palfrey and Rick Raczkowski have run the fund together since the late '90s, so it's a very experienced group. They benefit from a lot of the same resources that come into play for Loomis Sayles Bond--lots of depth in credit analysis and a lot of quantitative investments in recent years.

Our upgrade to Gold, a couple of things that stood behind that: One was that this was a fund that was quite expensive several years ago. So, the expense profile has improved; it still has kind of average prices, but it has improved over time. We also have a fairly high level of conviction both in the team and in the strategy. It's the strategy that has a lot of flexibility to use high-yield bonds, nondollar currencies, investments in emerging markets. And the team here has used that flexibility very well. In fact, it's very unusual to see a team that can navigate environments like 2008, 2011, or 2013 with ease, and this fund has been in the top third of its category in every year since 2006.

Now, what's really important to understand, though, is that although this fund has navigated this variety of environments very well, it still carries a lot of risk. Twenty percent of the portfolio is in high yield; it has a lot of exposure to emerging-markets corporates; and it has had periods of pretty severe underperformance. Last summer was an example of that, and it has also had some trouble through the opening weeks of December.

All in all, though, this fund is a really attractive option for those with the requisite risk tolerance and we've, therefore, given it a Gold Morningstar Analyst Rating.

Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.