FINDING VALUE IN THE BOND MARKET IN 2014 – by Elaine Stokes, co-manager of the Loomis Sayles Multisector Income Fund
In which segments of the bond market will it be possible to find value in 2014? We believe there is a good outlook for high yield, convertible bonds, ex-US bond markets and the bank loan asset class. In 2014, investors will be called upon to take a truly global perspective, encompassing both developed and emerging markets. They will have to put credit risk at the center and look for names that will have the greatest growth opportunities, since it will be these stocks that will best resist in the market context we will have to face.
THE FED – by Brian Kennedy, investment strategist for Loomis Sayles' Multi-Sector Bond strategy
At present, the impression is that the Fed and the markets are playing the game of the dog chasing its tail. The Fed will decide whether economic growth is sufficient to initiate the move towards a normalization of monetary policy. When this happens, it will be necessary to provide a balanced exit path to limit the impacts on the markets. If economic data improves and bond yields begin to rise even before the tapering starts, the Fed's exit strategy could run into some difficulties.
HIGH YIELD SEGMENT – by Diana Monteith, director of convertibles and special situations at Loomis Sayles
2014 will be a difficult year for this segment, with the possibility of returns limited to some particular periods. Internationally, high yield outflows and equity inflows will continue to occur, making further spread tightening difficult. Even riskier issuers will maintain a fairly balanced liability structure, so that high yields will continue to be less risky in 2014.
EMERGING MARKETS - by Peter Marber, head of emerging markets at Loomis, Sayles & Company
2014 could be a great year for emerging equity markets. Most of the major developing countries – China, Brazil, Mexico and Russia – have very low valuations with the potential for a quick recovery. In particular, Russia may be poised for an improvement. On the debt side, a tactical mix of exposure to EM hard currency and local currency bonds, with careful duration management, could be a good bond strategy for 2014.
LATIN AMERICA - by Bianca Taylor, senior government bond markets analyst at Loomis Sayles
2014 will be dominated by two important themes for emerging markets: reformist countries versus “parasitic” countries and energy exporters versus commodity exporters. Next year, in Latin America, Mexico and Colombia will probably achieve the most encouraging results, since both are characterized by a reformist slant and as energy exporters. Brazil and Peru, whose exports are dominated by the metals component, will keep pace.
GLOBAL STOCK MARKETS – by Lee Rosenbaum, co-manager Loomis Sayles Global Equity Strategies
While 2014 could see a full recovery in regional equity markets, stock selection will play a central role. Multiples expansion played a key role in stock performance, both in the US and in Europe. It is becoming more difficult to locate further room for an increase. We are looking for selected investment opportunities in developed countries. On emerging markets, we don't see any particular country taking center stage at the moment, but we have identified a select group of stocks in countries such as Russia and Brazil that we are very pleased with.
GLOBAL BOND MARKETS – by Scott Service, co-manager Loomis Sayles Global Bond Strategies
We believe M&A activity in Europe could pick up in 2014, and this usually doesn't particularly favor bond investors. In addition, active investors, especially in the US, are already making a lot of noise with their share buyback calls and dividend calls. This dynamic also favors shareholders over bondholders.
THE BANK LOANS SEGMENT – by Kevin Perry, Co-Manager of Loomis Sayles Bank Loan Strategies
In 2014, investors will begin to pay increasing attention to the trade-off between risk and return that characterizes the asset class of bank loans compared to corporate bonds. Good loan management is not measured by evaluating sector selection or rotation, but by considering emissions control and implementing rigorous portfolio construction. The challenge, but also the opportunity for investors, will be to find the most competent manager before the rate hike occurs.
GOVERNMENT AGENCIES – by Chris Harms, Co-Head of Loomis Sayles Relative Return Strategies
We believe that in 2014 asset classes underlying newly issued US agency household loans will be the underdogs, and should be avoided or at least heavily underweighted in portfolios. As soon as the market has completely discounted tapering, the technical dynamics that have allowed this asset class to achieve excellent performance could come to a halt, and spreads could widen.
