December 21, 2015 / 7:51 PM / 2 years ago

Loomis Sayles' Dan Fuss says 'being too cautious' hurt his bond fund

NEW YORK (Reuters) - Loomis Sayles Vice Chairman Dan Fuss said his popular Loomis Sayles Bond Fund, which is lagging 92 percent of its peers, suffered from overexposure to short-term securities coming into 2015.

“Sometimes being too cautious doesn’t pay off,” Fuss, who is known as the Warren Buffett of bonds, said in a telephone interview on Sunday. The fund has bled roughly $4.34 billion in cash withdrawals in the first 11 months of 2015, according to Morningstar data.

It now has assets under management of $17.3 billion, down from $24.42 billion at the end of 2014, Morningstar said on Monday. So far this year through Dec. 18, the fund is down 7.44 percent, lagging its multi-sector bond category by 4.90 percentage points, according to Morningstar data.

Fuss said he had been bracing for higher yields ahead of interest-rate hikes by the U.S. Federal Reserve that did not occur until last week. The fund had entered 2015 with 26 percent in “short-term reserves” including U.S. and Canadian government bonds.

Also, Loomis Sayles’ exposure to corporate bonds and high-yield “junk” debt helped pull prices lower in his fund, Fuss said.

In addition, the persistent plunge in oil below $36 a barrel is something no one could have predicted and has pressured various markets, including corporate credit.

Earlier this month, junk bonds took another leg down after Martin Whitman’s Third Avenue Management said it was barring investor withdrawals while it liquidated its high-yield bond fund, an unusual move that highlights the dangers of loading up on risky assets that are hard to trade even in good times.

In terms of credit-tightening, “I’ve been through these cycles before,” Fuss said.

Indeed, over the last 10 years through Dec. 18, the fund, which garners a top rating of four gold stars, has posted annualized returns of 6.14 percent and has surpassed 90 percent of its peer category, according to Morningstar.

Reporting by Jennifer Ablan; Editing by Lisa Von Ahn

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