NEW YORK (
) -- Jason Brady, manager of the
Thornburg Limited Term Income Fund
, says Treasuries still have room to run as corporate and consumer spending fail to ignite the economy.
The fixed-income mutual fund has risen 15% this year and 14% over the past 12 months, more than 95% of its
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.
How is the economy doing?
The economy has bottomed, but bottoming and growing significantly are two different things. With massive government stimulus, not just here but globally, we have avoided a financial catastrophe. However, the "V"-shaped rebound in the U.S. would have to be supported by both a strong corporate sector and a strong consumer taking over for government money flows, and I don't see that strength.
What is your view of U.S. Treasury bonds?
Everyone seems to hate Treasuries because of the Fed's quantitative easing strategy, and I certainly think that over the long term, these rates are unsustainably low. Still, with a slow-growth economy on the horizon, I don't believe we'll see inflation and the big sell-off that many folks are expecting. In fact, with a growing desire for income-producing securities out there, Treasuries seem to have some surprising strength.
What about corporate bonds?
Six to nine months ago, I was able to say that higher-quality corporates could act in many different roles in investors' portfolios due to their enduring quality and, at the time, attractive yields. Though risks have decreased somewhat, the rewards for holding corporates have decreased significantly. Though there is probably more room to run, the majority of the spread tightening we're likely to see is over. Now corporates, like other asset classes, have to be appreciated in a portfolio context. Investors need to lower their return expectations. An example of a quality bond that we still like and own, despite higher prices, is one issued by
National Rural Utilities Cooperative Finance
, which matures in 2018. We bought the bond to yield 10.5% in November, and now its yield is much lower at 5.5%. While that still has a place in our portfolio, obviously the upside has been diminished.
And foreign bonds?
Foreign bonds are a big category, but specifically non-U.S. dollar bonds are somewhat interesting here. The only problem is that currency moves can count against income, and, in our Income Fund, we are looking to have a stable income stream. In other funds, we own non-U.S. dollar bonds, and in those funds we use those bonds to offset potential price depreciation in the dollar-denominated securities. For example, in an inflationary environment -- which I don't foresee in the near term, but could easily occur in two to three years -- U.S. dollar bonds will lose value. It is likely that, for example, Brazilian bonds will gain in value versus the U.S. dollar, given their exposure to commodities. In funds that can take that risk, we own Brazil 12.5% of 2016.
What is your view of the U.S. dollar?
The price action on the U.S. dollar at the end of 2008 and the beginning of 2009 showed that there is still not a credible alternative as far as a global reserve currency. The recent downdraft is, in part, due to a return of risk appetite using the U.S. dollar as a carry currency rather than enormous fear over dollar devaluation. That said, if we continue to pursue debt monetization and grow our debt burden significantly, it is likely that a credible alternative will emerge.
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.