Fund in Focus: Loomis Sayles Strategic Monthly Income Fund

Low-volatility offering can enhance a core portfolio

Loomis Sayles Strategic Monthly Income Fund is a bond-focused balanced fund offered by Fiera Investments that takes a go-anywhere approach. The experienced management team is led by Dan Fuss of Loomis Sayles, and while the fund focuses mainly on bonds, it can invest up to 20% in dividend-paying common stocks. Right now, it’s using that mandate sparingly, with only 0.6% allocated to equity holdings at the end of August, 74% in corporate bonds, 15% in Treasuries, and the balance in convertibles, asset-backed securities, and cash. In recent months, the managers have taken a more defensive positioning, increasing exposure to cash and short-term U.S. Treasuries.

The managers use a mix of bottom-up credit analysis, quantitative risk analysis, and an opportunistic trading style. With a 75% weighting to corporate bonds, the bulk of the credit exposure is investment grade, but about a quarter of the portfolio is invested in higher-yielding, non-investment-grade securities. Maximum individual position sizes are capped at 5%, but in practice tend to be significantly lower. The fund is well diversified, with 268 holdings at the end of August. The top 10 comprise just over 27% of the portfolio.

Launched in 2015, the fund has a relatively short track record in Canada. However, it is substantially similar to a U.S.-offered fund that was launched in 1999. With a year-to-date return of 7.8%, the Loomis Sayles Strategic Monthly Income Fund has outperformed the peer group average of 5.9%, and posted a 3-year average annual compounded rate of return of 2.3% to Aug. 31, slightly over the category average of 2.0%.

Volatility has been well below average with 3-year average standard deviation of 2.8%, and capital protection in falling market environments has been excellent, resulting in strong risk-adjusted returns. Costs are a touch on the high side, with an MER of 1.79% for the Series A units. Despite this, it’s still slightly below the category average.

Fixed-income markets are likely to remain challenging, so funds like this one, with a well-seasoned management team, using an active investment style that often looks nothing like its benchmark, would be worth looking at. It is not a core bond holding, given its go-anywhere mandate. However, I see it as a nice addition to a more core-focused bond allocation, to enhance returns and reduce overall portfolio variability.

Loomis Sayles Strategic Monthly Income Fund, Series A
Fund company: Fiera Investments
Fund type: Global Fixed Income Balanced
FundGrade: C (August)
Style: Bottom-up
Risk level: Low to Medium
Load status: Optional
RRSP/RRIF suitability: Good
Managers: Dan Fuss, Matt Egan, Elaine Stokes, all since September 2015
MER: 1.79% (A Series)
Fund code: NXG6201 (Series A, front-end load)
Minimum investment: $5,000

Dave Paterson, CFA, is a money manager and an expert on investment fund research and due diligence on a variety of investment products.

Notes and Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with fund investments. Please read the simplified prospectus before investing. Mutual funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. This article is for information purposes only and is not intended as personalized investment advice.