Well-Liked Fund Gets a Ratings Dip

Sarah Bush: Despite a recent downgrade of its Morningstar Analyst Rating from Gold to Silver, there's still a lot to like about Loomis Sayles Bond. A team of veteran managers, including bond fund legend Dan Fuss, skipper the fund. They're backed by one of the deepest credit analyst teams in the business as well as dedicated sovereign and macro researchers. That depth is important because the team's approach is wide-ranging. The fund has the flexibility to invest across corporate bonds, convertibles, and non-U.S. dollar debt and will venture into emerging markets. Even the occasional stock pops up in the portfolio.

This mix typically makes this fund one of the most aggressive in the multisector bond category, and it’s vulnerable to steep losses in weak equity and credit markets. Meanwhile, modest concerns about concentration risk in the portfolio led to the fund’s recent downgrade to Silver. That said, the team’s combination of a research-driven and often-contrarian approach gives this fund plenty of appeal. The managers take advantage of downdrafts in the credit markets to identify bargains, as they did starting in mid-2014 when junk-bond prices fell sharply. At that point, they found good opportunities in larger and well-known issuers as well as commodity-driven names that were hurt by plunging oil prices. The fund turned in big losses in 2015 when these names and its currency exposure suffered but rebounded sharply in 2016 and 2017. Over the long-haul, investors who have been patient have been well-served here.