Loomis Swoops In to Buy Junk Bonds Amid ETF-Driven Sell-Off

(Bloomberg) -- Amid the worst sell-off in months for junk-rated corporate bonds, money manager Loomis Sayles & Co. has been selectively buying the debt.

“If you’ve done your deep-dive research, you take advantage of each of these bouts of volatility to add a little here, a little there,” Elaine Stokes, who co-manages the firm’s flagship Loomis Sayles Bond Fund, said in a Bloomberg Radio interview Tuesday. “Just because something gets downgraded, just because a company is moving to a different phase, doesn’t mean that as a bond investor you’re not still going to get paid.”

Speculative-grade bonds were on a tear leading up to November, with meager interest rates around the world driving investors into riskier assets and pushing yields to near-record lows. But amid warnings that the market had become frothy -- and a spate of bad earnings from some of the market’s biggest issuers -- investors lately have been yanking billions of dollars from the hands of fund managers who buy the debt.

Much of the outflows came in exchange-traded funds, with three of the biggest seeing withdrawals of $1.9 billion during the past week, data compiled by Bloomberg show. The biggest junk-bond ETF has dropped 2 percent this month, on track for its worst monthly decline in almost two years.

That activity in ETFs has exacerbated volatility, creating opportunities for bond-pickers like her, Stokes said.

While Stokes declined to name specific securities that Loomis has bought, the firm has dipped into some of the hardest-hit sectors, including the debt of telecommunications and health-care companies, she said. For example, debt of Frontier Communications Corp. has plunged around 9 percent this month, while bonds of Community Health Systems Inc. have lost more than 5 percent, Bloomberg Barclays index data show.

Stokes said she expects there will be more volatility ahead for the market. And that, too, may create opportunities for active managers looking for bargains, she said.

©2017 Bloomberg L.P.