Loomis Sayles' Koontz on Apple, Bristol-Myers and bonds

NEW YORK Wed Mar 14, 2012 10:16am EDT

Dan Fuss, Vice Chairman (L) and Warren Koontz, Portfolio Manager (C), of Loomis, Sayles & Co. stand with Lars Asplund, Managing Director of Lipper, (R), while being presented the award for Best Global Flexible Portfolio Fund at the Thomson Reuters Lipper Awards ceremony, in New York, March 8, 2012. REUTERS/Chip East

Dan Fuss, Vice Chairman (L) and Warren Koontz, Portfolio Manager (C), of Loomis, Sayles & Co. stand with Lars Asplund, Managing Director of Lipper, (R), while being presented the award for Best Global Flexible Portfolio Fund at the Thomson Reuters Lipper Awards ceremony, in New York, March 8, 2012.

Credit: Reuters/Chip East

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NEW YORK (Reuters) - Where can investors find growth and income in a volatile and yield-strapped market?

One option is the Loomis Sayles Global Equity and Income Fund. The managers of this $540 million portfolio search for high total return and current income, with flexible strategies to invest in stocks and bonds around the world.

Dan Fuss - winner of the Lipper Award for Excellence in Fund Management - has managed the domestic bonds portion of the portfolio since inception in 1996. David Rolley, who manages the international bonds, joined in 2000, and Warren Koontz, Jr. joined in 2004 as co-manager to manage domestic and international equities.

The fund, known until last year as the Global Markets Fund, outperformed its stock and bond benchmarks (MSCI World and Citigroup World Government Bond Indexes) during the last 10 years. It was a triple winner of the 2012 Lipper U.S. Fund Award in the Global Flexible Portfolio classification for consistent returns (Fuss also co-manages the Loomis Sayles Strategic Income Fund, another 2012 Lipper Award winner).

Co-manager Koontz spoke to Reuters about the outlook for investors in 2012.

Q: How do you execute your asset allocation and securities selection processes with so many managers at the wheel?

A: We're securities-selection driven. I find stocks across the globe and give the more interesting ones a higher weight, making sure they would give our portfolio appropriate risk characteristics. We may make our parts more concentrated, but, when they're put together, our portfolio is very diversified and is much less risky than our stock benchmark.

Our asset allocation depends on how we view our respective markets. Given Dan and Dave's expectation that interest rates will be rising in the next two years and our agreement that equities are more attractive longer term, our equity allocation has been at the maximum around 70 percent for most of the last three years. It's about 68 percent now.

Q: How low has it been in recent years?

A: Around the market low of March 2009, it was down to 54 percent.

Q: Being bottom-up investors, what do you look for in stocks? Is current income important?

A: In stocks it's a secondary consideration. Obviously, during the turmoil, a little more from dividends was a comfort. At 68 percent of the fund, stocks' contribution to income is now pretty significant.

Q: Have your equities ever underperformed your bonds?

A: During the financial crisis, equities did much worse. In 2008, they went down more than 48 percent, while our bonds were down 15 percent. From mid-2009 into early 2010 we made an allocation shift, raising equities 10 percentage points to 64 percent. The benefit was dramatic in 2010, when they returned 28 percent, nearly double the return of our bonds and more than double our MSCI benchmark.

Q: Where have you found stocks that have done so well for you? In broad areas? Individual companies?

A: Always a combination of the two. From the ideas that attract us, we take an area that needs more exposure in our portfolio. Consumer discretionary and technology names did very well when the market rose in 2010.

Certainly Apple was one. Our position went as high as 6.5 percent at one point in 2011, and I sold it down to 4.5 percent as a risk-control measure. Usually I don't like to have things more than 5 percent. This year it's back to 5 percent because of its performance.

Q: Can the top sector be the same in both stocks and bonds?

A: It's theoretically possible. Say I like Bristol-Myers. Dan may be looking at its bonds and realize that the spread on Bristol-Myers is very attractive. Dave may be able to play Bristol-Myers through some of their foreign bonds. We have the ability to play the best securities across a company's capital structure.

Q: At the end of last year, about two-thirds of the fixed income portfolio was not rated by rating agencies. Your co-managers must have some kind of a rating system of their own on the back of an old envelope.

A: More than the back of an old envelope. A group of 30-plus credit analysts are analyzing these things. With the growth of the firm, the number has grown.

Q: Has there been any change in 2012 in what you favor?

A: Well, our market has certainly been more favorable, starting in the fourth quarter. In the third quarter, when emerging markets got punished, we were fortunate to be underweighted. In the new year, they have played a bigger role.

(Editing By Lauren Young)

(Corrects misspelling of Koontz in headline.)

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