SANTA FE, N.M. (
) -- Jason Brady, co-manager of the
Thornburg Strategic Income Fund
, says he doesn't see a bubble in
and the dollar will remain the world's reserve currency as long as the government controls inflation.
The fund, which invests in international bonds and stocks, has risen 24% year-to-date, topping the 21% gain of the
Morgan Stanley Capital International EAFE Index
and the 13% advance of the
S&P 500 Index
. It's up 2.1% in the past year, while both indices lost value.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.
Which corporate bond issue do you like the most right now?
The one position we like the most is a tough call as we get income from a very wide variety of sources from mortgages, high-yield bonds, high-grade bonds, munis and foreign and U.S. governments.
3.125% convertible bonds. The current price is $81.50 for a 10.72% yield for around three years of risk. Cash on the balance sheet is significant, though that may be used for spectrum purchases. The bond is a busted, unrated convertible, so the universe of potential buyers is smaller than many other kinds of bonds.
Which dividend-paying stock is your favorite?
Again we don't have favorites as there are a number of interesting places to get qualifying income. We like Australia's
outside the U.S. both for the stable business and for the currency exposure. Domestically, we like
Annaly Capital Management
. It's a bond-like equity agency mortgage REIT with significant cash flows.
Is there a bubble in Treasuries?
I don't think there's a bubble in Treasuries, at least not at 3.5% yields on the 10 year. Investors are trying to weigh the possibility of inflation and growth against deflationary pressures from housing, lost jobs and decreased spending.
What is your view of high-yield bonds?
High yield can be a great asset class, certainly the year-to-date performance has been huge. But spreads are no longer discounting a default rate, which I think we're likely to see at something on the order of 13% to 14%. Default rates in the early '90s and 2000s topped out at around 12% and I think this time around is going to be a little worse. So there are great individual stories but as an asset class it's tough to get really excited at these levels.
What is your view of the dollar?
The dollar remains the global reserve currency and there are few really viable alternatives in the near term. However, if we continue to spend and push debt above 75% or 100% of gross domestic product, if we continue to pursue inflationary policies post recovery, then the reserve currency status can go away.
We have many of the same problems as the rest of the world, and Europe and Japan aren't exactly regions which inspire great confidence. Still, both are being more responsible from the point of view of a currency trader than we are, and neither are as addicted to leverage.
Australia and Canada represent very interesting places to be and given their stronger fiscal positions could represent both solid locations for money as well as potential hedges against inflation -- which kills bond prices generally -- due to their commodity exposure.
-- 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.