Ford Bonds Benefit at Expense of Toyota

NEW YORK (TheStreet) -- Peter Palfrey, who helps manage the Loomis Sayles Core Plus Bond Fund(NEFRX), says Ford's bonds remain attractive even as they've rallied, helped by Toyota's(TM) car-quality problems.

The $324 million mutual fund has risen 25% in the past year, beating 77% of its competitors, and an annual average of 6.1% over five years, outperforming 92% of rivals. The Loomis Sayles Core Plus Bond Fund has 51% of its assets in corporate bonds and 22% each in government and mortgage debt. The rest is in cash, according to Bloomberg data.

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Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock or bond picks and economic views in five questions.

What is your favorite corporate bond issue?

Palfrey: We like the bonds of the Ford Motor Credit Co., which continues to perform well and remains an integral part of the Ford Motor Co. FMCC has significantly improved its financial position and product offerings over the past nine months as exemplified by a year-end cash balance in excess of $25 billion, improved third-party vehicle quality and brand consideration scores, and a relatively robust product pipeline for the next 12 months.

Toyota's increasingly troubling and highly publicized quality problems also present an opportunity for Ford to boost market share. FMCC generated a $696 million operating profit in the fourth quarter and has improved its liquidity profile by accessing the asset-backed market. Although FMCC bonds have rallied during the past year, they still offer attractive yields in the 7.5% to 8% range for intermediate maturity (five to seven years) bonds.

What is your view of the economy?

Palfrey: The economy will continue on its slow growth, recovery path but with considerable cross-currents in coming quarters. Much of the recent growth has come off severely depressed levels, propelled by exceptionally accommodative monetary policy, budget-busting fiscal-stimulus programs, quantitative easing and herculean efforts by the U.S. and foreign governments to recapitalize the global financial system and restore the flow of credit and liquidity in markets. As fiscal and quantitative easing programs and policies wind down, we will lose one of the primary drivers of the 2009 recovery.