Making A Habit Of Performance

How Dan Fuss plans to maintain his fund's returns despite the weak dollar and possible higher rates

Bond fund manager Daniel Fuss wakes up for work at exactly 4:28 a.m. -- without an alarm. Every day, he eats Wheaties for breakfast. His daytime snack is always an apple, followed by a banana, followed by another apple. It's safe to say Fuss is a creature of habit.

Fuss is also a consistently successful investor. Managers Bond Fund (MGFIX ), which he has run since 1984, has been one of the best-performing funds in its peer group. During the past five years, the fund, now with $190 million in assets, earned an annualized 8.9% return. Fuss has worked at Boston money manager Loomis Sayles for 27 years, where he has also been running the firm's $2.6 billion Loomis Sayles Bond Fund (LBFAX ) for 13 of those years.

SIZE ADVANTAGE. The Managers Fund is the more conservative of the two, shunning the higher-yielding emerging-market debt that the larger fund buys. Still, Fuss says the smaller size can be an advantage. "You can do things with a fund of this size that wouldn't make a hill of beans of difference in the Loomis Sayles Bond Fund," he says. For example, Fuss has invested in community loans used to finance local projects. The asset-backed securities carry an AAA rating, but most bond pros overlook them because they're issued in tiny amounts and are tough to trade.

The fund can hold up to 10% in international debt, often issued in foreign currencies. Lately it has been operating at full throttle with holdings such as Norwegian sovereign debt as well as World Bank debt issued in New Zealand dollars, providing a nice cushion against the U.S. dollar's fall. "International bonds can be real dampeners on volatility," Fuss says.

Expecting higher interest rates, Fuss has cut the fund's sensitivity by shifting from long-term debt to intermediate bonds with an average maturity of 9.1 years. "I personally don't think we will see a rise in short rates for the balance of the year," Fuss says. Long-term rates and inflation should jump soon, he says.

At a time when his peers are retired and spending their days on golf courses, Fuss, 70, is working as hard as ever. He plans to continue. Coming from the king of consistency, that's a promise you can bank on.

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