NEW YORK (
) -- Mike Bacevich, co-manager of the
Hartford Floating Rate Fund
, has been buying chemical- and car-company loans as the economy emerges from a recession.
The $3.1 billion mutual fund, which garners three out of five stars from
, has risen 39% this year, better than nearly 60% of its peers. The Hartford Floating Rate Fund is up over 7% during the past year, putting it in the 66% Morningstar percentile.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers give their views and picks in five questions.
What is your view of the bank-loan market?
We're bullish on the bank-loan market even after this year's incredible rally for two reasons: First, corporate loan prices have only recovered to pre-Lehman levels in the high 80s; we're still about 10 points below the historical average. We believe this upside potential, plus a monthly dividend, makes bank-loan funds still attractive. Second, bank loans have a floating interest rate, which means our dividend will typically increase or decrease with movements in short-term interest rates. Loan funds have, and will continue to, attract investors concerned about rising interest rates.
What is your favorite corporate sector?
We firmly believe that the U.S. economy is slowly on the mend and, therefore, have been reducing our defensive names and adding cyclicals. Specifically, we have cut back on health-care and utilities loans in favor of chemicals and autos. The possibility of a W-shaped recovery certainly exists, but even if it occurs, we believe the combination of massive fiscal and monetary stimulus will minimize the severity of a potential second leg down.
Will we see increased or decreased defaults?
The pace of loan defaults has rapidly slowed from earlier this year. We're expecting the default rate to peak either this quarter or the first quarter of next year at around 11% and then decline rapidly as companies begin to benefit from the broad economic recovery as well as the return of liquidity to the marketplace.
What is your opinion of the financial sector?
The bank-loan market focuses on companies rated below investment grade. A good rule of thumb for us has been to avoid any financials rated below investment grade. The only exceptions are asset-management firms. We like the predicable management fees and high barriers to entry of asset managers.
Which sector would you avoid right now?
Gaming. Historically, we have underweighted this sector. The rally in gaming is hard to justify. The overcapacity is extraordinary and will only get worse as more and more states approve gaming for the first time or existing gaming states increase the number of licenses in an effort to balance their budgets. Every state surrounding Atlantic City now has gambling, so why go there? And there are thousands of hotel rooms that have yet to come on line in Las Vegas. We think a messy shakeout is inevitable, and that that sector best be avoided.
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.