Fuss' new frenemy

The woman widely viewed as the likely successor to legendary bond fund manager Daniel Fuss has taken on a new role that will put her in direct competition with her old colleague. Kathleen Gaffney, who co-managed the $22 billion Loomis Sayles Bond Fund with Mr. Fuss for the past 15 years, was named co-director of investment grade fixed-income at cross town rival Eaton Vance Corp. Tuesday. The news was first reported Monday by InvestmentNews. In her new position, she will be responsible for crafting new multisector bond funds for Eaton Vance, the firm said. The funds will have the freedom to invest globally across government, investment grade credit, high-yield, and emerging-markets debt, similar to the funds Ms. Gaffney co-managed at Loomis Sayles. Ms. Gaffney’s track record co-managing multisector funds is among the best in the industry. During her tenure as co-manager of the Loomis Sayles Bond Fund ticker:(LSBRX), the fund had an annualized return of more than 8%, more than 200 basis points better than that of the Barclays Aggregate Bond Index. It’s unclear, though, just how much of the fund’s performance could be attributed to either Ms. Gaffney or Mr. Fuss, or even the two additional managers that were added to the fund in 2007. Jae Park, chief investment officer at Loomis Sayles & Co. LLC, said he didn’t expect the fund to be negatively affected by Ms. Gaffney’s departure since the rest of the management team and its research staff aren’t going anywhere. “We’ve been working to build a team process with deep resources for a very long time,” he said. For some advisers though, the loss of Ms. Gaffney is raising questions. Melissa Joy, director of investments at the Center for Financial Planning Inc., has approximately $19 million of client assets invested in Loomis Sayles bond funds that Ms. Gaffney co-managed. “Part of our conviction with Loomis Sayles bond strategies was Kathleen Gaffney’s long tenure with Dan Fuss,” she said. “Over the years, we spent as much time focusing on Gaffney as we did on Fuss when we evaluated the strategies.” Now that Ms. Gaffney has left, Ms. Joy said, her firm will be reviewing the fund’s management team. “We made the decision to not take an immediate action, but we need to redo our homework,” she said. Ms. Joy will also be keeping a keen eye on Ms. Gaffney’s new venture. “We’re curious to see what she has up her sleeve,” she said. Once the planned Eaton Vance multisector funds get off the ground, presumably sometime next year, it will be interesting to see just how much Ms. Gaffney’s investment ideas coincide with or deviate from Mr. Fuss’. Payson Swaffield, chief investment officer at Eaton Vance, does expect there to be some differences. Either way, the new hire is likely going to be a big boon for Eaton Vance, which has $22 billion in fixed-income mutual funds today, according to Lipper Inc. For comparison, Ms. Gaffney was managing approximately $74 billion of fixed-income assets at Loomis Sayles. Multisector bond funds have also been a hit with investors as they look for a more tactical approach among the credit and interest rate potholes that litter the fixed-income landscape today. Such funds have taken in $13.5 billion of net inflows through the end of September, the sixth-best-selling category, according to Lipper.