June 27 (Bloomberg) -- Daniel Fuss, manager of the $18 billion Loomis Sayles Bond Fund, cut his U.S. Treasury holdings in favor of non-U.S. markets that haven't been hit as hard by the credit shortage.
``My sense is that the U.S. is tough, and that Asia is not weakening to the extent that some people believe,'' Fuss, 74, said yesterday at an industry conference in Chicago.
Fuss, vice chairman of Boston-based Loomis Sayles & Co., reduced his U.S. Treasury investments by more than two-thirds in the six months ended March 31. One-fifth of the fund's assets are now in non-U.S. bonds, led by Canadian securities at 9.4 percent. Loomis Bond has climbed 4.4 percent in the past year, more than 64 percent of rivals, according to data compiled by Bloomberg.
Bond managers including Curtis Mewbourne of the $2.4 billion Pimco Diversified Income Fund have put larger portions of their assets outside the U.S.
The Chinese and Russian economies are still ``fairly robust,'' said Mewbourne, who has increased holdings in countries such as Brazil. The Pimco fund, which has 37 percent of assets in emerging-markets debt, gained 2.4 percent in the past year, ranking it ahead of 75 percent of peers.
Bond investors are struggling to balance attractive yields with risk because of a credit crunch triggered by the collapse of subprime mortgages last year.
Yields on U.S. Treasuries have fallen as investors have fled to the safest government-backed debt. The 10-year note's yield declined 7 basis points to 4.03 percent, after earlier touching 4.02 percent, the lowest in more than two weeks.
Cutting Treasuries
Within the U.S., the bond-fund managers said they are investing in corporate debt. Fuss has reduced his U.S. Treasury holdings, while adding to corporate bonds and high-yield debt. His fund holds 3 percent in Treasuries, down from 10 percent last September, and 18 percent in high-yield credit.
``One thing I get excited about is high-yield bonds,'' Fuss said. He helps oversee $50 billion, including accounts for institutional investors.
Mewbourne, of Newport Beach, California-based Pacific Investment Management Co., said hybrid securities issued by U.S. banks such as Citigroup Inc. offer good opportunities for bond investors.
``There's a pretty good certainty that big banks in the U.S. aren't going to default,'' Mewbourne said.
El-Erian's View
Emerging-market bonds fell yesterday, pushing yields relative to Treasuries to their widest since April, as declining U.S. stocks prompted investors to shun higher-yielding assets.
Falling values of fixed-income securities have forced banks and securities firms worldwide to take $400 billion in asset writedowns and credit losses, according to Bloomberg data.
Mewbourne and Fuss spoke at a conference organized by Morningstar Inc. Also speaking in Chicago, Pimco Co-Chief Executive Officer Mohamed El-Erian said investors are reassessing risk in the wake of the credit turmoil and the emerging might of developing economies.
Pimco, a unit of Munich-based Allianz SE, is the largest manager of bond assets, with more than $800 billion. Loomis Sayles, a subsidiary of Paris-based Natixis, manages $130 billion in bonds and stocks.
To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.
Last Updated: June 27, 2008 13:03 EDT
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