Putnam's Kohli sees value in Brazil, Europe, mortgages
BOSTON, March 14 Reuters - Bill Kohli took the wheel of a global bond fund fresh out of graduate school.
As a summer intern at Franklin Templeton in the late 1980s, one of his projects was to build a global bond portfolio.
"When I finished the summer there, they asked me if I'd run it," says Kohli, who now is co-head of fixed income at Boston-based Putnam Investments.
More cocky than scared, the 26-year-old Kohli jumped into the job in 1987. The Latin American debt crisis was in full bloom and Australia's treasurer already had rattled the world when he warned that his country risked becoming a "banana republic" if it didn't address its heavy debt load.
"It was a great time for global bond managers. Dislocation in a number of markets created a lot of opportunities for us," Kohli says.
Now, 25 years later Kohli, 51, finds himself in a similar environment in which global tumult equals big opportunity.
Since the end of 2009, Putnam's Global Income fund, for example, has capitalized on Europe's sovereign debt crisis and other economic chaos, more than doubling in size to about $390 million in assets. On Thursday, Lipper, a Thomson Reuters company, ranked the Putnam fund first out of 43 unique portfolios in the global income fund category during that three-year period.
Putnam's long track record of emphasizing bond research is a key reason why Kohli joined the company in 1994. He credits Putnam's sovereign research team for making a good call about three years ago to avoid investing in the countries now at the center of the crisis.
That call helped the Putnam Global Income Fund produce an annual total return of 19.77 percent for the three-year period that ended November 30, according to Lipper. The fund's performance beat the average return of 10.2 percent for that sector.
Farther afield, Kohli uncovered yield for investors by buying the inflation-linked bonds of Brazil.
"You can get inflation-adjusted yields of 7 or 8 percent in Brazilian notes," Kohli says.
He has also scooped up investment grade European corporate debt trading at junk bond prices.
Most of the time attractive yields are found not in weak companies, but in those located in countries that are having economic or political problems, according to Kohli.
"We think corporate exposure in Europe, even below investment grade debt, could be attractive. ... Those euro markets have lagged the United States in snapping back," Kohli says.
In the United States, Kohli has been wading through the wreckage of the subprime mortgage crisis. Some institutional investors have had to unload their mortgage-backed securities because of rating downgrades. Once again, the Putnam Global Income fund has found opportunity in buying non-agency residential mortgage-backed securities at steep discounts.
Even if you assume a downbeat forecast for the U.S. housing market over the next few years, the cash flow from those mortgage-backed bonds looks reliable, Kohli says.
The fund has bought the most senior tranches, which are paying 100 percent on the dollar.
"The biggest risk is not the outcome of the housing market, or the up and down in prices," Kohli says. "It's just a function of a core group of holders that had to sell these bonds."
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