Star managers battered by rocky ride in yields, currencies

Thu May 28, 2015 11:31am EDT
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By Jennifer Ablan

NEW YORK (Reuters) - Some of the biggest names in the investment world have been whipsawed by the recent rise in global yields and the strength in the euro against the dollar, with investors bracing for more sharp moves later this year stemming from central bank actions.

Pimco's flagship Total Return Fund, which lost its crown as the biggest bond fund in the world in April, had been lagging its peer intermediate-term category and benchmark after going long German bunds and shorting euros against the dollar in recent months.

Even bond veterans Dan Fuss of Loomis Sayles and Bill Gross of Janus Capital Group Inc have run into a few snafus by their fixed-income and currency trades.

"The market is more volatile," Fuss, 81, said in a telephone interview. "We don't react or change strategies by the day - today, tomorrow or next week. Our focus on the bonds and currency markets are much, much longer."

Top money managers and investment strategists have been warning the U.S. Federal Reserve was preparing markets for an interest-rate hiking cycle and that other central banks were embarking on loose policies that would trigger volatility. And yet, when rates rose at their fastest since the "taper tantrum" in 2013, many of those managers got caught flat-footed.

Fuss said his Loomis Sayles Bond Fund is lagging its peer multi-sector bond category and benchmark because 28 percent of the fund is in non-U.S. dollar assets.

"We don't have any kind of shorts, leverage or derivatives in our fund," Fuss said. "It's currency exposure that contributed to our performance, positively in most years but negatively over the last 11 months. It has also provided higher income for comparable quality."

The Loomis Sayles Bond Fund, with $23.7 billion under management, is down 0.20 percent so far this year, underperforming its peer category by 2.10 percentage points and trailing 98 percent of its multi-sector group, according to Morningstar data.   Continued...

U.S. dollars are counted out by a banker at a bank in Westminster, Colorado November 3, 2009.  REUTERS/Rick Wilking