Dan Fuss: U.S. Bonds Look Most Vulnerable In Four Decades

Ted

FYI: Dan Fuss, one of the world’s longest-serving fund managers, said his flagship bond fund has cut exposure to high-yield corporate bonds and raised the quality of its holdings, warning that the U.S. bond market is more vulnerable to a sell-off now than at any time since the financial market rout of 1974.
Regards,
Ted
http://www.reuters.com/article/usa-markets-loomissayles/u-s-bonds-look-most-vulnerable-in-four-decades-loomis-sayles-fuss-idUSL3N1NE2T3

bee

Thanks @Ted,

If you ever have an opportunity to read or listen to a Dan Fuss Interview, do so. Like Bogle, Fuss is a grandfather like figure that is both engagingly dry and full of financial wisdom.

From @Ted's article on owning bonds in today's market:

“I do know from my 59 years of experience, when the ice was very thin, it’s always good to be very cautious,” he said. “You can skate around the edges but you can’t go out to the middle.”

and,

“I‘m not trying to be an ‘end of the world person’ here, but it is a possibility,” he said. “It used to be one percent, now it’s a 15 or 20 percent possibility. Would you get on an airplane if there was a 15 percent risk? And that’s a good way to ask a person about risk,” he said.

Maybe investor confirmation bias, but I sold my "middle of the pond" position in AGDYX about a month ago. His concerns about a lack of buyer of bonds and a higher risk of inflation paired with do nothing politicians is what you pay a bond manager to worry about. Bond index funds provide none of this risk management.

Wish the article dug a little deeper into Dan Fuss and his bond choices over the next part of the market cycle.

msf

For all the criticisms of LSBDX as being highly volatile, it's beaten or matched the standard benchmark (Barclays US Aggregate) and nearly done so with its benchmark index (Barclays Government/Credit), falling 0.14% short/year over three years (but better over 1, 5, 10, 15). That's despite an abysmal 2008.

After 59 years in the business, 26 years managing this fund, Fuss' record is more likely the real article than random chance success. So when he takes this free wheeling fund to its most conservative position ever, it's worth taking note. (Unlike some other bond fund managers who shall remain nameless, Fuss doesn't go out of his way seeking the spotlight.)

The Loomis Sayles Bond Fund has reduced its risk exposure to the lowest since its inception in 1991

Here's a much more extensive article on his macro views (Oct 19, 2017):
https://www.advisorperspectives.com/articles/2017/10/19/dan-fuss-warns-of-geopolitical-risks-and-higher-rates-1

bee

Thanks @msf,

Fuss said that investors should exercise caution by building reserves, and that they position themselves for an environment of rising interest rates

Seems like floating rate funds (Bank Loan Funds) might be a place to start:
MWFRX, PRFRX, DLFRX, CFRZX...maybe others can add to this list.

Keep in mind these bank loan funds have higher market correlation risk. CFRZX lost 30% in 2008.

Old_Skeet

Thanks for posting the Dan Fuss article. I own NEFZX which is a Loomis Sayles bond fund and they have dialed it way down also. It's duration is listed by Morningstar at 3.13 years with maturity being 4.6 years along with a yield of 3.49%.