Should You Follow Kathleen Gaffney Out of Loomis Sayles Bond Fund?

Loomis Sayles Bond (symbol LSBRX), a member of the Kiplinger 25, has set a high bar for multi-sector bond funds: It boasts a ten-year annualized return through October 23 of 10.6%, a figure that beats 94% of its peers. Year-to-date, the fund has earned 12.1%, putting it in the top 16% of the multi-sector bond category.

So when one of its four managers jumps ship for another firm, you take notice.

On October 19, Kathleen Gaffney, a 28-year Loomis Sayles veteran, resigned from the firm. Gaffney leaves to join Eaton Vance -- which, like Loomis, is based in Boston -- to serve as lead manager of a team for new multi-sector bond funds for institutional and retail investors. Robyn Tice, an Eaton Vance spokesperson, says the funds' strategies will draw on the firm's existing lineup of high-yield bond funds, floating-rate bank loan portfolios, global bonds and currencies, taxable municipal assets, and absolute-return funds.

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In other words, Gaffney will do the same job she did at Loomis, but for Eaton Vance instead.

Is her departure a signal that it's time to bail on Loomis Sayles Bond, a go-anywhere fund that invests in just about anything, including junk bonds, mortgage-backed securities, Treasuries and, yes, even stocks? Not yet, but we're keeping a careful eye on the fund.

Jae Park, Loomis's chief investment officer and the person to whom all of the firm's managers report, says Gaffney's absence should have no impact on Loomis Sayles Bond. For the past ten years, Loomis has been moving from a portfolio-manager-focused investment process to one that's more team-oriented. So Park, who says he wishes Gaffney well, says the firm didn't try to get her to stay. "I felt we had sufficient resources here."

Indeed, Gaffney was one of four managers at Loomis Sayles Bond -- and not even the most famous one at that. Dan Fuss, 79, who is also Loomis's vice-chairman, holds that honor. The fund's other two managers -- both of whom joined as co-managers in 2007 -- are Elaine Stokes, who has been with the firm for 24 years, and Matt Eagan.

In an interview last summer, Gaffney described the team process: The entire team -- consisting of nearly 40 traders, fixed-income researchers and analysts, led by Fuss -- meets every morning. The meetings allow the firm to tap into its rich well of research: "It's what provides the breadth and depth of our work, and it allows good ideas to bubble up," she said. "We broadened the team to bring good balance with different strengths."

But in some ways, the shift left Gaffney on the bench. Park says he increasingly relied on specific "go-to" people to collaborate with other teams -- groups of analysts and managers divided by sector or funds, for instance -- within the organization. More and more, says Park, his go-to people were Stokes and Eagan. Gaffney, says Park, "would not have been a go-to person in the process. To interact with other product teams or other sector teams -- that wasn't her natural strength." Though Park says Gaffney would have remained a portfolio manager with an equal say in investment decisions, he adds, "My concern was that she would feel some diminishment of her role, so that might have concerned her a bit."

Gaffney, who starts at Eaton Vance on October 25, could not be reached for comment.

Should you follow Gaffney to Eaton Vance? Probably not. The key difference: Eaton Vance funds charge a load. For investments of less than $50,000, the firm's Class A shares for bond funds cost 4.75%. By contrast, the retail share class of Loomis Sayles Bond is available without a sales charge and requires just $2,500 to start.

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