Morningstar Video: Fidelity's Galusza
Morningstar posted a video interview with Fidelity Conservative Income Bond Fund Manager Rob Galusza entitled, "Fidelity: Money Market Reform Transition Went Well." (Note: Galusza is scheduled to speak on a "Senior Portfolio Manager Perspectives panel at our upcoming Crane's Bond Fund Symposium, March 23-24 in Boston.) It says, "The $1 trillion shift from prime to government money market funds last year was surprisingly smooth, says Fidelity Limited Term Bond's Rob Galusza." The Morningstar piece quotes Galusza, "You are correct, it was a big event that occurred last year. There was a transition of over $1 trillion out of prime money market funds into government money market funds. So as that transition occurred, there was a large movement of money that transitioned from one investment strategy into the government money market. So, for a time period, last summer and into the fall there was a little bit of dislocation that occurred into those markets with commercial paper, spreads moving higher. The LIBOR rates or interbank offering rates moving higher. So, that created some opportunities for the ultrashort and short-term bond space to come in and invest in those markets, both on the municipal money market side as well as the taxable money market side. Surprisingly, with such a large amount of money that moved, the transition went relatively well." On the Fed, he comments, "We're in a rising interest-rate environment, and the question is how much and how fast. So, there are various views on how quickly the Fed will move.... [T]hey have given guidance of up to three potential tightenings this year. I would say we are more in line with the market and that we see potentially two tightenings in 2017. We think they are going to be more toward the back part of the year, potentially June and December as the market and the Fed has to digest what the new initiatives are going to be with the administration." Galusz adds, "A couple of things, we have looked at within our short duration portfolios leaning a little bit on the short side of our target benchmark durations, as well as being overweight the spread sector. So, we are constructive on the economy at this point and we do like corporates as a sector. [W]e have been overweight corporate bonds and some of the other spread sectors ... they tend not to trade with the same duration as the rates market and government market. So, that will allow our portfolios to empirically perform a little bit on the shorter side of the benchmark. [W]e see that positioning being beneficial for shareholders in a rising rate environment."
