Fund in Focus: Loomis Sayles Strategic Monthly Income Fund

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.

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