Buy When the Bonds Are Flooding the Street
Kurt Brouwer August 23rd, 2007
Baron Rothschild is reputed to have made the pithy statement that the best time to buy is when the blood is running in the streets. Over the past couple of weeks, we have not seen any actual blood, but bargain basement bonds and other securities were certainly pouring into the markets and that presented some mutual funds with a great opportunity.
Tom Lauricella and Diya Gullapalli at the Wall Street Journal report [emphasis added]:
‘While many traders are licking their wounds from a drubbing in the bond market, some veteran mutual-fund managers are finding buying opportunities…
…these top-performing funds are moving into the corners of the bond market that other investors have abandoned, such as junk bonds and loans backing highly leveraged takeovers, as well as mortgage-backed securities.
Some managers, for example, snapped up bonds backed by mortgages at fire-sale prices after they were unloaded by Thornburg Mortgage Inc…
…At Third Avenue Management, which has a history of finding values in investments others are abandoning, the distressed-debt team and fund managers are investing in the debt of “liquidity constrained” companies like mortgage real-estate investment trusts, says Curtis Jensen, a Third Avenue co-chief investment officer and portfolio manager. “We’re looking at anything distressed or under pressure,” he says…
…Mr. Jensen has company in another well-known stock picker, Legg Mason’s Bill Miller. Mr. Miller points to Thornburg Mortgage’s recent sale of $20.5 billion of top-rated mortgage-backed securities as an attractive investment. “That was a once-in-a-generation opportunity to buy that paper,” Mr. Miller says. “The area of mortgage financing is seeing all kinds of dislocations” to take advantage of.
In an earlier post, I wrote:
‘…I am certain that savvy mutual fund portfolio managers are looking at the financial sector, but in order to make bargain buys, they have to have cash on hand. In some cases they have it. For example, a number of fund managers–particularly value-oriented managers–have built up cash…’
We use a couple of mutual funds from the Third Avenue family of funds and a couple from Legg Mason. It’s nice to see confirmation that each fund group is hard at work on our behalf, seeking out and finding bargains.
- Investing , Mutual Funds
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