BOSTON (TheStreet) --Bank of America (BAC) - Get Report, Citigroup (C) - Get Report and other banks' bonds are the best bets, says Matt Eagan, who helps manage the Loomis Sayles Bond Fund (LSBDX) - Get Report.
The $19.1 million bond mutual fund garners four of five stars from
. Loomis Sayles Bond Fund has returned 7.5% this year, beating all but 13% of its rivals. Over five years, the fund has risen an annual average of 7.3%, exceeding 96% of peers.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks and views on the market in a five-question format.
What's your view of the economy?
We are in a transition period. It's going to take a while for the economy to get back on its feet without relying on stimulus. But we are not going to go into a double dip. We are going to continue to grow. It's going to be at a modest pace, below expectations, but still growth.
For a while, the big worry was inflation. Now it seems to be deflation. Where do you come down in the debate?
We were never really worried about inflation when people worried about it before. Our view was the immediate problem was to get growth going in the economy. And we think the near-term risk is deflation. Inflation is a longer-term risk. We will be about to manage our way through these challenges, but it will be difficult.
Should we worry about the massive debt the U.S. has created? Or should we borrow and spend more for the sake of growth?
It's a matter of priorities. Debt is a concern, and we need to make plans to reduce the deficit over time. A credible plan needs to be communicated. But, near term, it is more important to get growth up and going, and then we can deal with the debt problems later. But they are both major concerns.
You're a big fan of corporate bonds right now. What are some of your favorite companies?
On the investment-grade side, we like a lot of the finance companies. They've got good yield spreads. A lot of the banks that have come out of the recession now are stronger. Specifically, we like the large, U.S. money-center banks like Bank of America, Citigroup and
. Outside of financials, I would look toward strong industrials. One of our biggest holdings is
, which just knocked the ball out of the park with second-quarter earnings.
A lot of people say that the best days for bonds are behind us, and it's now time to get into stocks because bond yields are so low.
Certain parts of the equity markets are interesting. I like large-cap with big dividends. They're competitive versus bonds. But with the economy kind of weak here, it's going to be difficult for the equity market to have a lot of momentum. I see a lot of choppiness. It's going take time for the economy to get back on its feet. So in the meantime, we're going be in this transition period. And yield wins. And you can get good yield out of corporate bonds and high-yield investment grade bonds.
-- Reported by Gregg Greenberg in New York.
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Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.