Bright Lining

Around this time last year, Elaine Stokes, co-manager of the $11 billion Loomis Sayles Bond Fund, thought the stage was pretty well set for an economic upturn. Most major economic indicators were pointing upward, the Republican agenda was intact, and a recession was the last thing on most people’s minds.

All that changed in the last three months of the year. “The coin just flipped into uncertainty,” she says. “We went from a Republican-led agenda to a mixed Congress with stalemate situations and unpredictable government policy. That called into question what felt like certainty around Fed moves and low chances for a recession.” To cloud the picture even more, China’s economy slowed down more than many people had expected. High-yield corporate bonds especially felt the pinch as investor preference migrated from riskier assets to the relative safety of U.S. Treasury securities.

The bond market volatility last year, especially in the fourth quarter, was a marked departure from the long stretch of relative economic calm and falling interest rates. Unfazed by the maelstrom, Stokes and her team stepped in to buy corporate bonds in energy and other sectors that had been punished in the bond market. The equity market decline also offered the opportunity to add to the fund’s small stock holdings in sectors such as technology, industrials and energy.

“With volatility comes opportunity,” Stokes says. “The best time to buy is when everybody else thinks it’s a bad idea.”

The managers have an eye for finding value in areas other investors are abandoning, a key theme of this fund since its launch in 1991. In 2010, for example, the team added Irish sovereign debt to the portfolio during that country’s economic turmoil. As the shock of Brexit set in a couple of years ago, the fund bought the out-of-favor bonds of some European banks and finance companies.

Shareholders can credit 85-year-old investing legend Dan Fuss, who has managed the flagship Loomis Sayles Bond Fund since its inception in 1991 and has been with the firm since 1976. Fuss shaped the fund’s opportunistic approach to finding value in the bond market. The 54-year-old Stokes first became acquainted with that approach in 1988, when she was interviewing for an administrative assistant’s job at the firm.

Nothing that happened that day pointed to a good outcome for Stokes, then in her early 20s. Her car lost its muffler in the middle of a bridge on the way to the interview, forcing her to abandon the vehicle to look for a pay phone and get help. Against all odds, she still made it to the offices of Loomis Sayles.

Later that day, she took a math test and waited in an empty room for 30 minutes after she’d finished before realizing she was supposed to turn it in herself. One of the people she spoke to that day was Fuss, who had pictures of battleships adorning his walls. The manager made a number of analogies between his military experience and investing that she had trouble relating to.

Despite all that, she ended up getting the job, and was eventually promoted to trader and then portfolio manager. In addition to co-managing several of the firm’s fixed-income funds, she is on the executive board of a mentoring organization called Strong Women, Strong Girls. Her mission is to inspire more women to join the male-dominated investment management and financial services industries.