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Thank you. Cash position at over 20% is the highest in recent years. Dan Fuss is preparing for the worst scenario since geopolitical riisk can spread into other markets.
Fuss seemed to contradict himself in this article -- and I suspect that's the fault of the journalist who must have misunderstood him. He says in one graph that he's selling long bonds because he's afraid of rates going up, then says in the next that with so many global troubles, the Fed can't possibly raise rates. Which is it?
expatsp I don't think Fuss contradicicted himself ... Below is my take.
In reading the article the message I received is that Fuss is trying to stay a step or two ahead of big money as he feels they will soon begin to exit certain foreign positions and wants to be out before the liquidity starts to dry up in these foreign securities. I believe, he is also saying the US and Canada will become the better place to be once these headwinds start to blow over many of these foreign markets while at the same time the US will not be without some headwinds itself. With this he has been selling the longer dated domestic maturities and also moving this money to cash. Typically he would be running with an average maturity of about twelve years but now has reduced this down to about six and one half years while staying with the short to intermediate term securities. Usually in a big storm, the winds can come form more than one direction and many times twister formations develop. And, these twisters formations can develop into some very nasty storms. With this, the safe haven place is cash and this is the asset class that he has now started to build.
With this, I am glad that Fuss is the senior money manger for one of the six fixed income funds that I own within the fixed income sleeve of my portfolio and that is NEFZX. And, another former Lommis Sayles standout is Kathleen Gaffney who worked with Fuss a good number of years who is now with Eaton Vance and manages another fixed income fund that I own and this fund is EVBAX. I believe she is in a cash build mode as well.
Perhaps a few of our better posters that are good at making calls and moving money can make a comment here about this and that is Junkster amd Catch22. I believe both of them are several cuts above me in reading the tea leaves within the fixed income area. It would be interested in knowing their takes on this. Perhaps, they will stop by and comment. Also, BobC positions a lot of client based money and it would be interested in hearing his take as well. All of these would be my big three plus no doubt Scott stands tall in this area too.
Heck, we have a good number of posters on the board and I am sure there are a good number beyond those that I mentioned that might have thoughts worth reading as well.
The author is more than a little confused. He initially mentions the Loomis Sayles International Bond Fund (LSIYX) but links to the Loomis Sayles Bond Fund (LSBDX). Fuss is a manager of the latter (with $25 billion AUM) but not the former.
@Ted Loomis Sayles Global Bond Fund (LSGLX) is a different fund which Fuss also does not manage.
I thought old Skeet did a nice job summarizing Fuss's thinking.
I think we tend to overstate the extent to which Fed influences longer term rates. Generally their influence is at the shorter end of the curve. Longer rates react more to inflation expectations. So, it would not be inconsistent to fear rising rates longer-term while expecting Fed to keep short term rates low for longer.
I think Fuss is brilliant - and very approachable as well. I also think, like many of us here, he has been somewhat befuddled in recent years by how low rates have gotten and, more significantly, how long they have stayed low.
I'm not sure I agree with his thinking re global macro politics. But, reading the tea leaves (his) it's a dire prophesy. I've been thinking the logical outcome from the U.S. Russian conflict will be political drum-beating at home, an arms build-up, increased deficit spending and a weakened Dollar which would cause many foreign currencies to appreciate visa vie the Dollar.
Thanks, Skeet and Hank, I think I've got a handle on Fuss's thoughts now! The difference between long and short term rates is the key, I believe. I figured the confusion wasn't his, but the journalist's and mine.
Mr. Ruffles is correct - the author is quite confused; Skeeter's interpretation seems much closer to the mark. (More than one Barron's author recently has misunderstood basic concepts.)
Other misunderstood items ...
"Cash and cash equivalents" does not mean Treasuries (and Canadian bonds). "Cash" does not mean "secure", it means ultra short term. The reported 27% appears to come from the writer adding up LSBDX's Treasury and Canadian holdings. Loomis Sayles itself reports cash and cash equivalents (as of 7/31 - the last date on its website) as 1.6% (up from 1.1% the previous month). Even adding in bonds with durations under a year, we only get up to 16%.
Maturity isn't what matters; duration (and convexity) are. (Also, the benchmark LS uses has an average maturity of 7.86 years, in contrast to the supposed 12 year typical maturity the author claims for this fund.)
LSBDX is a multisector bond that is restricted in the amount of foreign bonds it can hold. Except, it can hold an unlimited amount of Canadian securities. So pulling out of Europe and Asia is not necessarily a bet in favor of the dollar (sorry, Skeet). One should look at non-US (i.e. Canadian) exposure too.
To put it another way, Fuss saying that there is risk "overseas" is not the same thing as saying that there is risk in "foreign" currencies. Aside from Canada, the fund has increased its exposure to the Mexican Peso in the past year (it was under 2%, now at 3.4%).
In any case, the only exposure to Asia or Eastern Europe a year ago (Sept 30, 2013) were miniscule amounts in South Korea, Indonesia, and Singapore. Okay, Singapore has been dropped as of July 31, 2014.
I only listen to Hasenstab of Templeton on subject of global bonds because that's where I am invested. Not to say Fuss is wrong, just that I don't follow other managers.
Howdy @msf Thank you for your efforts with this. I was reviewing the Loomis web site this morning and the numbers did not match with the "implied" scenario from the article writer. Hoping Mr. Fuss read this article and understands the perception of the information. Disclosure: we hold LSBDX Regards, Catch
Who knows if Mr. Fuss will be right about the timing of his moves. But he is acting on convictions, and that is good enough for me. It is darned hard to argue with his record. We have essentially been out of core bond funds for the last 3-4 years. If Mr. Fuss turns out to be correct, the last thing I want is to be stuck holding a fund that has no flexibility to adjust its holdings. As most FA readers know, we use LSBDX as a holding, along with OSTIX, and depending on the custodian, TSIIX, GSZIX, or BSIIX in most client accounts.
As has been pointed out LSGLX (a dog of a fund in its category for many a year) is not managed by Fuss. While I respect Fuss and his ex sidekick Gaffney, no one can predict or forecast so I have always adhered to the wisdom of Benton Davis that the market is always right and always tells its own story best and that is by the action of the market itself. Because I don't believe in large drawdowns in my account that is why I gravatated to tight rising channels. In LSGLX's category take a gander at the tight rising channel (aka PRICE) of VTIBX
I have never looked at a fund's expense ratio (ever) or even who manages it (except for Dan Ivascyn, the real rock star in bondland) just its *price action*. While some world and international bonds are having a great year - even better than VTIBX - I prefer the tight rising channels where you get some bang for your buck and that is why since mid January I have been talking ad nauseum here about junk munis. Albeit there were some fundamental reasons combined with its price in January that originally attracted me to that sector.
I certainly can't predict. I sold a little over 20% of my 100% position in my junk munis last week because I was really wary of Friday's employment report. That was a mistake so went back in at Friday's close although it is now all EIHYX (no more NHMRX) with ABTYX in my smaller taxable account. EIHYX which is up over 14% YTD has not so much had even a 0.75% intra year decline from its highs. I love the junk muni sector because there is a shortage in issuance also driving it higher. What better could you want? You have a rising technical market combined with super bullish fundamentals (issuance shortage) But unlike many who trade or invest I never fall in love with my positions or especially my opinions. If price action dictates, I am gone.
I want to thank all that that I noted in my comment and who stepped forward with making their comments. I believe anyone who read their comments took something away of value from reading them. I like to especially thank MFS and hank for chiming in with their comments too. Perhaps, we will hear form Scott in the near term. And, I can not forget Ted as he post so many fine links for our reading enjoyment.
Q: How many boards have the tallent that has been expressed in just this one thread alone?
Comments
Or am I the one who misunderstood something?
In reading the article the message I received is that Fuss is trying to stay a step or two ahead of big money as he feels they will soon begin to exit certain foreign positions and wants to be out before the liquidity starts to dry up in these foreign securities. I believe, he is also saying the US and Canada will become the better place to be once these headwinds start to blow over many of these foreign markets while at the same time the US will not be without some headwinds itself. With this he has been selling the longer dated domestic maturities and also moving this money to cash. Typically he would be running with an average maturity of about twelve years but now has reduced this down to about six and one half years while staying with the short to intermediate term securities. Usually in a big storm, the winds can come form more than one direction and many times twister formations develop. And, these twisters formations can develop into some very nasty storms. With this, the safe haven place is cash and this is the asset class that he has now started to build.
With this, I am glad that Fuss is the senior money manger for one of the six fixed income funds that I own within the fixed income sleeve of my portfolio and that is NEFZX. And, another former Lommis Sayles standout is Kathleen Gaffney who worked with Fuss a good number of years who is now with Eaton Vance and manages another fixed income fund that I own and this fund is EVBAX. I believe she is in a cash build mode as well.
Perhaps a few of our better posters that are good at making calls and moving money can make a comment here about this and that is Junkster amd Catch22. I believe both of them are several cuts above me in reading the tea leaves within the fixed income area. It would be interested in knowing their takes on this. Perhaps, they will stop by and comment. Also, BobC positions a lot of client based money and it would be interested in hearing his take as well. All of these would be my big three plus no doubt Scott stands tall in this area too.
Heck, we have a good number of posters on the board and I am sure there are a good number beyond those that I mentioned that might have thoughts worth reading as well.
Old_Skeet
@Ted Loomis Sayles Global Bond Fund (LSGLX) is a different fund which Fuss also does not manage.
I think we tend to overstate the extent to which Fed influences longer term rates. Generally their influence is at the shorter end of the curve. Longer rates react more to inflation expectations. So, it would not be inconsistent to fear rising rates longer-term while expecting Fed to keep short term rates low for longer.
I think Fuss is brilliant - and very approachable as well. I also think, like many of us here, he has been somewhat befuddled in recent years by how low rates have gotten and, more significantly, how long they have stayed low.
I'm not sure I agree with his thinking re global macro politics. But, reading the tea leaves (his) it's a dire prophesy. I've been thinking the logical outcome from the U.S. Russian conflict will be political drum-beating at home, an arms build-up, increased deficit spending and a weakened Dollar which would cause many foreign currencies to appreciate visa vie the Dollar.
Other misunderstood items ...
"Cash and cash equivalents" does not mean Treasuries (and Canadian bonds). "Cash" does not mean "secure", it means ultra short term. The reported 27% appears to come from the writer adding up LSBDX's Treasury and Canadian holdings. Loomis Sayles itself reports cash and cash equivalents (as of 7/31 - the last date on its website) as 1.6% (up from 1.1% the previous month). Even adding in bonds with durations under a year, we only get up to 16%.
Maturity isn't what matters; duration (and convexity) are. (Also, the benchmark LS uses has an average maturity of 7.86 years, in contrast to the supposed 12 year typical maturity the author claims for this fund.)
LSBDX is a multisector bond that is restricted in the amount of foreign bonds it can hold. Except, it can hold an unlimited amount of Canadian securities. So pulling out of Europe and Asia is not necessarily a bet in favor of the dollar (sorry, Skeet). One should look at non-US (i.e. Canadian) exposure too.
To put it another way, Fuss saying that there is risk "overseas" is not the same thing as saying that there is risk in "foreign" currencies. Aside from Canada, the fund has increased its exposure to the Mexican Peso in the past year (it was under 2%, now at 3.4%).
In any case, the only exposure to Asia or Eastern Europe a year ago (Sept 30, 2013) were miniscule amounts in South Korea, Indonesia, and Singapore. Okay, Singapore has been dropped as of July 31, 2014.
Thank you for your efforts with this. I was reviewing the Loomis web site this morning and the numbers did not match with the "implied" scenario from the article writer. Hoping Mr. Fuss read this article and understands the perception of the information.
Disclosure: we hold LSBDX
Regards,
Catch
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=vtibx&insttype=&freq=&show=
Now let's look at the dog LSGLX
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=lsglx&insttype=&freq=&show=
Enough said!
I have never looked at a fund's expense ratio (ever) or even who manages it (except for Dan Ivascyn, the real rock star in bondland) just its *price action*. While some world and international bonds are having a great year - even better than VTIBX - I prefer the tight rising channels where you get some bang for your buck and that is why since mid January I have been talking ad nauseum here about junk munis. Albeit there were some fundamental reasons combined with its price in January that originally attracted me to that sector.
I certainly can't predict. I sold a little over 20% of my 100% position in my junk munis last week because I was really wary of Friday's employment report. That was a mistake so went back in at Friday's close although it is now all EIHYX (no more NHMRX) with ABTYX in my smaller taxable account. EIHYX which is up over 14% YTD has not so much had even a 0.75% intra year decline from its highs. I love the junk muni sector because there is a shortage in issuance also driving it higher. What better could you want? You have a rising technical market combined with super bullish fundamentals (issuance shortage) But unlike many who trade or invest I never fall in love with my positions or especially my opinions. If price action dictates, I am gone.
Q: How many boards have the tallent that has been expressed in just this one thread alone?
A: Not many.
Thank you again.
Old_Skeet