David Rolley Co-Portfolio Manager, Loomis Sayles Global Bond Fund
In an era of negative bond yields, it has rarely been more challenging to make money in the world’s fixed income markets. On this week’s WEALTHTRACK, veteran Portfolio Manager, David Rolley of the Loomis Sayles Global Bond fund explains how he and his team are both protecting their portfolios and seeking outsized returns in some out of the way places.
CONSUELO MACK: This week on WEALTHTRACK, Loomis Sayles Global Bond Fund Manager David Rolley is finding more valuable plays in places like India and Brazil and tells us what other international investments are music to his ears. That’s next on Consuelo Mack WEALTHTRACK.
Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. A recent Wall Street Journal headline put it succinctly: “New Era in Bonds: Zero Yield, or Less”. For the first time ever a country, in this case Switzerland sold a 10-year bond that gives investors a yield below 0%.
That negative yield means investors who bought the bonds when they were issued will not get all of their principal back in ten years, they will actually lose money. That’s not supposed to happen when you buy a top rated government bond. It also turns the whole borrower/lender relationship on its head. Why are investors paying Switzerland to lend the country money?
It’s a question we will discuss with this week’s veteran bond manager guest.
Another phenomenon with the potential to roil the bond markets is the relationship between supply and demand. It has changed dramatically since the financial crisis and the changes are not favorable to investors. Liquidity, the ability to trade bonds easily has deteriorated.
As you can see from this chart, dealer inventories of corporate bonds have plummeted as banks and other traditional market makers have withdrawn from the market under pressure from new laws and rules put in place after the financial crisis.
But while dealers reduce their supply the size of the market has soared as more companies issue bonds and more investors buy them. The problem is without big dealers it is getting harder to buy and sell bonds quickly, particularly in size.
These are just two of the challenges facing bond investors today. This week’s guest is more than up to the task.
He is David Rolley Co-Team Leader of Loomis Sayles’ Global-Fixed Income Group and Emerging Market Debt Group. Rolley is the Co-Portfolio Manager of several funds including the Loomis Sayles Global Bond Fund since 2000, which is a Morningstar silver medalist and the Loomis Sayles Global Equity and Income Fund which is ranked four-star by Morningstar, and which he has co-managed since 2008 with bond legend Dan Fuss.
Loomis Sayles is a long-time sponsor of WEALTHTRACK but Rolley has more than earned his spurs as a global investor for over three decades.
I began the interview by asking Rolley how hard it is to find investment opportunities around the world.
DAVE ROLLEY: Well, Consuelo, the reality is it is probably as difficult today as it has ever been, and it’s difficult for a reason. Our yields are very low. This is not, you don’t need an expert to know that interest rates are low in the United States; and they’re not just low in Europe, they’re negative in Germany, negative interest rates. This is unprecedented, and this has happened for a reason, and the reason is that our markets, the bond markets, are, you might call, collateral damage in central banks’ attempts to speed up the world economy, but they’re doing it with interest rate suppression. That’s really what quantitative ease is: they’re buying a lot of bonds that drives up the price for the short term, but it drives down the interest rates, and that’s across all the yield curve, and it’s true in the United States, it’s true in Europe, it’s true in Japan, and I think it’s increasingly true even in China.