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Top Fund Managers Still Selecting Winners

Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Gregg Greenberg joined NBR to discuss fund managers' top picks in a slow economy. (Watch video)

NEW YORK ( TheStreet) -- Top mutual fund managers are finding a way to make money as the economy slows.

"It's going to take a while for the economy to get back on its feet without relying on stimulus," says Matt Eagan, who helps manage the $19.1 billion Loomis Sayles Bond Fund (LSBDX). "We are going to grow, but it's going to be at a modest pace, below expectations."

The Loomis Sayles Bond Fund has returned 22% over the past year, better than 85% of its peers. As for stocks, the S&P 500 yesterday extended last month's 6.9% gain after an April-to-June decline brought on by concerns of slowing economic growth. Even as most companies are beating analysts' earnings estimates, economists say the unemployment rate probably rose last month, producing choppy stock-market returns.
Word on the Street

To capitalize on his cautious economic outlook, Eagan is loading up on bonds from Bank of America (BAC - Get Report) and Citigroup (C - Get Report). The fund manager says the bailed-out banks are clearing away liabilities after the financial crisis and are making generous profits without taking on excessive risk.

Eagan is also heavily invested in cash-rich industrial companies, as well as Ford (F - Get Report), which said it had its most profitable first half of the year in more than a decade.

The bond fund manager is also persistently reminded by the press -- and his equity-side peers -- about a so-called bond bubble. While he admits they make a good argument for stocks, Eagan says the environment continues to favor bonds, especially high-quality ones paying healthy yields.

"It's going to be difficult for the equity market to have a lot of momentum considering the weak economy," says Eagan. "So as long as we remain in this slow-growth mode, corporate bonds will be the better alternative."

Travis Takes Stocks

Unlike fixed-income manager Eagan, Intrepid Capital Fund (ICMBX) manager Mark Travis deals solely in stocks. He has a superior record of picking the right ones, generating average returns of 7% over the past five years, exceeding 99% of his mid-cap peers.

Similar to Eagan, however, Travis expects growth to be slow in the second half of the year as consumers and governments dig their way out of debt.

"It's just tough out there. We have a lot of leverage in the system, probably 3.5 times our GDP of $14 trillion," says Travis. "We are going to have to work it off the hard way, either by repudiating it or paying it down."
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