CHICAGO (TheStreet) -- Falling prices on consumer goods and services could become a problem as investors sell assets to raise cash, says Aaron Izenstark, manager of the Iron Strategic Income Fund (IFUNX) - Get Report.
The $487 million fund, which has earned five stars from
, has returned 20% during the past year by investing in junk-bond funds run by other money managers. The portfolio has gained 9.8% annually, on average, during the past three years, beating 99% of rival funds.
As of April 30, the fund's top holdings were the
Pimco High-Yield Fund
Fidelity High-Income Fund
Goldman Sachs High-Yield Fund
, according to Bloomberg.
Fund Manager Five Spot, where America's top mutual fund managers give their views on the market in a five-question format.
What is your view of the economy?
We believe that the balance of economic indicators shows the economy is expanding. The challenge going forward will be to grow the economy fast enough in order for job growth to pick up.
Are you more worried about inflation or deflation?
In the near term, we are more concerned about deflation. As the world is finding out, too much debt can overload an economy and make it impossible for a country to simply pay its bills. This in turn causes widespread asset sales in order to raise cash. This is how a deflation spiral can occur.
In the medium-to-longer term, or when economic expansion is accompanied by job growth, rising interest rates and directional upward movement in the equity market, then inflation pressures will return. However, there are no specific indicators now that would foresee inflation to be unmanageable at that time.
How do you manage the fund in this volatile environment?
We manage with an element of downside protection, which brings alpha to the portfolio that we believe is needed in the current market environment. We believe in separating beta and alpha.
Since your fund owns other funds, what do you look for in a high-yield manager?
In the high-yield space, we look for funds that have broad-based exposure to the market. Therefore, we look for managers that believe in a diversified high-yield portfolio.
What high yield sectors do you like best and why?
In order to provide alpha to a high yield portfolio, we believe in first getting broad-based diversified exposure. This is the beta component. We then add alpha to the portfolio by buying protection on the portfolio. This has the effect of raising and lowering our exposure to the high-yield market. This is the alpha component.
Reported by Gregg Greenberg in New York
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.