Subtle Differences Separate These 2 Fine Bond Funds
Despite their differences, Loomis Sayles Bond and Loomis Sayles Strategic Income both demand patience and a long-term perspective, says Morningstar's Sarah Bush.
Sarah Bush: Gold-rated Loomis Sayles Bond and Silver-rated Loomis Sayles Strategic Income share much in common, but differences in their risk profile could have an impact on their long-term results.
Both funds are managed by the same well-resourced team, anchored by bond fund legend Dan Fuss and veterans Elaine Stokes and Matt Eagan. They both take a contrarian, often value-based approach to investing and aren't afraid to hold significant stakes in high-yield credit and non-dollar currencies. This approach and the strong team has led to strong results over the long term, although both funds are vulnerable to bouts of underperformance when credit markets turn south or when non-dollar currencies struggle.
That said, there are some key differences between the two portfolios, and Loomis Sayles Strategic Income is clearly designed to be the more aggressive of the two. Loomis Sayles Strategic Income, most notably, holds a relatively large allocation to equities. This stake has around as high as 20% of assets in recent years compared with high-single digit stakes in Loomis Sayles Bond. Equities add risk to an already credit-sensitive portfolio and contribute to both funds, but particularly, Loomis Sayles Strategic Income's high correlation to the S&P 500.
Interestingly, that difference has narrowed some in recent months and it will be interesting to see how different the funds are going forward. That said, for prospective investors in either funds, it's important to take a patient approach and to be prepared for volatile performance.
Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.