Matt Eagan, CFA®, Head of the Full Discretion Team, Loomis, Sayles & Co., thinks we're in a higher-for-longer interest rate environment, and that's really being driven by some structural features that pervade the economic landscape. “Most importantly, the fiscal deficits that a lot of advanced economies are facing are structural in nature and related to demographics, security concerns, electrification, and the spending that's going on in those areas,” said Eagan. He expects these factors to be tailwinds for inflation and keep both real rates higher and inflation premiums higher as we go through various market cycles.
Pursuing value across all sectors and cycles
Loomis’ Full Discretion Team follows a bottom-up security selection process through all cycles – focusing on six investment pillars: Fallen Angels, Cheap for Rating, Upgrade Candidates, Stressed/Distressed, Avoid Losers, and New Issue Premium. “When we look at our six pillars throughout different market cycles, the most important one is Cheap for Rating, which is where the value is. We still see at any given point in time about 20% to 30% of the market offers Cheap for Rating. So, we're always harvesting those value ideas,” said Eagan. He added that Cheap for Rating is where his team does very well as bond pickers. Loomis’ experienced research team understands where the credit ratings may be headed, in some cases two to three years out in time. Also, he believes they are early at identifying those trends. This enables the Full Discretion Team to buy bonds at attractive prices and watch them get upgraded.