A bond-fund manager who retired last year wanted to leave before the difficult bear market for bonds that she sees ahead

August 4, 2013, 4:55 p.m. ET

Bond Manager Wanted Out Before the Bear Arrives

MICHAEL A. POLLOCK

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Margaret Weinblatt and her husband traveled to China last year.

For successful financial professionals, the toughest decision sometimes is when to quit. The bond-market outlook made the choice easier for Margaret “Didi” Weinblatt, who retired in 2012 after a dozen years as a bond-fund manager at San Antonio-based USAA Investments. Ms. Weinblatt fears that fixed-income investors generally now face a very difficult bear market in bonds as the Federal Reserve eventually pares back its economic stimulus. “Your fund might do well relative to other funds, but when the bond market goes down, all funds could go down,” she says. “That can be very stressful for a fund manager.” Ms. Weinblatt, who is 69, worked in funds management for nearly three decades. At USAA, she managed the $4 billion-plus USAA Income fund and the $500 million USAA Government Securities fund. The funds rank, respectively, in the top quarter and top third of their Morningstar Inc. MORN +0.60% categories for the past decade—performances that she says resulted from “being careful to not take on too much risk.” The Income fund’s only stumble during her tenure was a negative 5% return in 2008.She says she relied on USAA credit analysts in choosing bonds for her portfolios and, during the crisis, steered clear of the subprime-mortgage-bond sector. She did shop for bargains in the investment-grade corporate area, and also bought common shares of a few blue-chip companies that paid attractive dividend yields. That helped power the Income fund to a return of nearly 20% in 2009.

But to find a bond market comparable to today’s, in terms of poor outlook, she says, one has to go back to 1994, when she was a portfolio manager at a unit of Neuberger Berman Group LLC. The Fed in early 1994 began a series of increases in short-term rates to tighten policy. The timing sparked a sharp selloff and generally dismal returns in bonds that year.

Still, in some ways, 1994 was easier, she adds. Money-market rates that year were rising from a starting point of around 3%—well above today’s near-zero level—and then doubled over about the next year. So people who moved out of bonds quickly were able to get decent returns in money-market funds. This year, by comparison, with rates as low as they are, investors had “no coupon protection, no place to hide,” she says.

Her advice for now is to remain cautious: Although rates have jumped, they could continue to tick higher as the economy recovers, she says. One conservative strategy, she says, is moving money gradually into short-term bond funds. Assuming that the Fed alters its policy gradually, as rates rise, such funds will be able to reinvest the money they get from maturing issues at higher yields, leading to better future returns.

As for Ms. Weinblatt, since retiring, she has been indulging her passions for foreign travel and classical music, touring China and going to the opera in Berlin. “I sat in front of a terminal all those years,” she says, “and I thought it would be nice to do some traveling before I was too old for it.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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