Matt Eagan on the economy | Loomis Sayles and Co | Video

Transcript

Loomis, Sayles and Company has successfully negotiated the volatile bonds market of recent years and now manages over $191bn of assets. Talking about their approach is Vice President and Portfolio Manager at Loomis Sayles, Matt Eagan.

World Finance: Introduce us to Loomis, Sayles and Company, what do you offer your clients?

Matt Eagan: Loomis is a global asset management company, we’ve been around since 1926, we’re currently on the fixed income side managing over $180bn worth of assets under management. We have a full range of capabilities on the fixed income side, everything from core products that are tightly managed verses a benchmark, to go-anywhere styles on the multi-sector stage, to alternatives including hedge fund capabilities.

“We have a macro-process integrated into everything that we do”

World Finance: What do you think has made you successful?

Matt Eagan: There are really four main factors that counts for our success. First, our macro process, we have a macro-process integrated into everything that we do. By doing this we are able to identify trends, spot them early and take advantage of them. Second is fundamental research; we have a very large staff of research analysts on the fixed income side and on the equities side. Third is our quantitative capabilities; we talk about quantitative, this is not just something that monitors risks from afar, we actually have it integrated into our process. This enables us to not shy away from risk but to take on good risk where we think we’re being compensated for it, understand that risk and manage it properly. And finally is our ability to consider alternatives and we have capabilities to look at the market, both from a long perspective and a short perspective, and it allows us to really optimise opportunities and risks for our clients in all portfolios.

World Finance: What kind of impact is the Federal Reserve having on portfolio management?

Matt Eagan: Well the Fed has had a very heavy hand in the market, and obviously their policies have had the affect of driving interest rates down to really distorted levels. We see the winds changing on that front, right now we think we’re transitioning to a period where rates are going to rise on a secular basis. So now, the good news is that rates are rising, but the challenge will be how to preserve principal as we get to that higher level of yields.

“The key area of diversification is away from interest rate sensitivity”

World Finance: You talk about this transition period, in what ways have you had to diversify to find value?

Matt Eagan: Well the key area of diversification is away from interest rate sensitivity, so that means de-emphasising government bonds and high-quality markets, so US treasuries and the like, and moving into other sectors like corporate bonds whether it be investment grade, high-yield where we have the flexibility, convertible bonds, emerging markets. Loomis Sayles is very research focussed and in many cases a lot of our portfolios will build one bond at a time, and focussing on where the value is. So those are some of the places that we may go. We’ll also invest internationally, we have global capabilities and are very comfortable investing in overseas markets, both in the developed area and in the emerging market area.

World Finance: How do you tackle challenges in other markets, such as Europe, and is it still possible to find other opportunities despite the challenges?

Matt Eagan: There are opportunities globally, and Loomis Sayles is a global firm, and what we do is bring our research capabilities to a market like that and look through the rubble to find where there is pockets of value in that market. For us there were opportunities in the peripheral sovereign market, that we participated in, as well as the investment grade corporate and high-yield area where some, a few, gems there. The market is a little bit more pricier than it was now, but we still think there’s good value in some of those areas.

“We use research to look through the rubble to find where there are pockets of value in that market”

World Finance: So finally, what’s your outlook for global growth?

Matt Eagan: So I think global growth will continue to muddle along here supported by very aggressive policies from central banks around the world. The growth will be lead by the major economies, fortunately the US we think is at the vanguard, in the developed world, for positive growth, being lead now by our housing sector we think is picking up steam, which is good news. There are still challenges in the US, the biggest one being our fiscal drag that we’re likely to have, so there’s pluses and minuses, but overall we should see about 2-3 percent growth rates in the US. And China is, the second largest economy, is struggling to maintain very rapid growth, but is growing still about 6-7 percent per annum, which is quite attractive. So the two largest economic engines are starting to gain some momentum and positive growth, which is good for the world. We look at the rest of the developed world, Europe is struggling to grow, and will continue to struggle based on some of the austerity that they have in place and just not enough aggressive policies from both the central bank and the regulators there. So overall, muddling through, positive growth from the main engines of the world, which should be supportive of risky assets.

World Finance: Matt, thank you.

Matt Eagan: Thank you very much.