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Patience Has Paid for This Multisector-Bond Fund

Manager Dan Fuss' ability to uncover value in troubled names has helped Silver-rated Loomis Sayles Strategic Income build an excellent long-term record, but it's not for the faint of heart.


Sarah Bush: Loomis Sayles Strategic Income (NEFZX) has appeal, but it's not for the faint of heart. Longtime manager Dan Fuss is known for his benchmark-agnostic value-driven approach to investing in the bond markets. Here, he's joined by Loomis Sayles veterans Matt Eagen and Elaine Stokes, who have been at Loomis Sayles for a long time and also have been comanagers on this fund since 2007. The three are backed by Loomis Sayles' significant investments and research analysts and other investment resources. The fund's strategy is similar to that employed by its sibling, Loomis Sayles Bond (LSBRX), but with a more aggressive tilt. 

This fund allocates large chunks of the portfolio to junk-rated corporate bonds, which recently accounted for about one third of the portfolio. It also tends to run with large allocations to nondollar currencies and, since 2011, it's had a large stake in equities. These are mostly dividend-playing blue-chip names, but they can add to the fund's overall volatility. 

Unsurprisingly, given this makeup, this fund has a relatively high correlation with equity markets and can run into trouble--bouts of underperformance and losses--when we see trouble in currencies, credit, or equities. That's been the case so far this year. The fund's 7.4% loss through September 2015 is one of the worst in the multisector category. Losses in currencies, especially the Canadian dollar, and also some of its larger stock names are to blame. 

That's not been enough, however, to take a toll on the fund's long-term record. Fuss' ability to uncover value in troubled credit names, equities, and even the occasional struggling sovereign have helped this fund to an excellent long-term record. The fund's 10-year return is one of the best in the multisector-bond category. For those with the requisite patience, this fund remains a strong option.

Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.