Gaffney blazes her own trail

JUN 09, 2013
Kathleen Gaffney is stepping out of the shadow of her former boss. In October, she abruptly quit Loomis Sayles & Co. LP, where her career began in the mid-1980s, to join Boston crosstown rival Eaton Vance Corp. The move caught many by surprise, especially since Ms. Gaffney was seen as the heir apparent to Loomis Sayles' renowned bond manager, 79-year-old Dan Fuss. “I had just turned 50 the previous year and started to reflect on how I wanted to finish my career,” she said in an interview. “I wanted to really grow and challenge myself.” Mission accomplished. After 15 years of co-managing the $22 billion Loomis Sayles Bond Fund (LSBRX), Ms. Gaffney will launch her first solo-managed fund at the end of this month. The Eaton Vance Bond Fund will have the same go-anywhere mandate as her previous fund, putting her in head-to-head competition with Mr. Fuss. Go anywhere, or nontraditional, bond funds have exploded in popularity since the financial crisis as investors have looked for funds with the ability to sidestep trouble spots or rising interest rates. Assets in such funds have grown to $58 billion, from $13 billion at the start of 2009. Even so, Ms. Gaffney might have taken on a bigger challenge than she planned. For starters, navigating today's bond markets is no easy task. With the Federal Reserve keeping interest rates near zero, most areas of fixed income have been driven to record-high valuations and low yields, leaving little value to be found across the board. “The risks of investing in fixed income are growing by the month,” said Michael Herbst, director of active fund research at Morningstar Inc. Even Ms. Gaffney, who also is co-director of investment-grade fixed income at Eaton Vance, concedes that she has her work cut out for her. “I can't think of a harder time to start a portfolio from scratch,” she said. That said, Ms. Gaffney hopes to distinguish her- self through securities selection. “It's not so much about choosing the right -sectors now,” she said. “It's a bond picker's market when values aren't extremely cheap,” Ms. Gaffney said. “The value of security selection is something investors have missed in the last several years.” Even if Ms. Gaffney is able to live up to her track record in this environment, there is still the challenge of standing out. Indeed, at Loomis Sayles, her reserved personality made communicating her ideas to investors one of her biggest challenges, she said. “It was a little nerve-racking, but over time, I started to really enjoy that intellectual part of investing,” Ms. Gaffney said. Eventually, she was a fixture on conference calls with advisers. Ms. Gaffney and Mr. Fuss, who is a personal friend, often were presented as a package deal, said Melissa Joy, director of investments at the Center for Financial Planning Inc., which has owned shares of the Loomis Sayles Bond Fund since 2006. Ms. Gaffney will have to rely on her communication skills more than ever at Eaton Vance. More than $1 trillion has been invested in bond funds since the crisis, and the biggest beneficiaries have been larger-than-life managers such as Pacific Investment Management Co. LLC's Bill Gross and DoubleLine Capital LP's Jeffrey Gundlach.

"FIERCE' COMPETITION

“The competition is fierce,” Mr. Herbst said, pointing to other big bond shops such as BlackRock Inc., Loomis Sayles, TCW Group Inc. and Western Asset Management Co. as having the advantage that advisers know them. Eaton Vance isn't on that level — at least not yet. In addition to how it stands out among the crowd, advisers, such as Ms. Joy, will be watching closely to see just how different Ms. Gaffney's fund will be than her previous one. “It seems like a clone of the Loomis Sales Bond Fund from the outside looking in,” Ms. Joy said. Ms. Gaffney is confident that there will be enough differences to set the new fund apart, though there will be some similarities, as well. “Sure, there will be some overlap,” she said. “The hallmark of a value-oriented strategy will remain the same,” Ms. Gaffney said. “The art part is having different sets of eyes looking at very broad markets and coming up with different security selections.” [email protected] Twitter: @jasonkephart

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