'I DON'T SEE INFLATION PICKING UP IN THE FUTURE'
Margaret Patel, portfolio manager of the Third Avenue High-Yield Fund, is upbeat about modest economic growth and the sustainability of low inflation.
ON INFLATION
"We've had seven years of strong economic growth without inflation. I don't see inflation picking up in the future because we've been able to have growth without inflation in the past, and we're getting back to that now."
ON THE MARKETS AND THE FED
"The market is self-correcting, and only when the government weighs in do you get big dislocations. I think there has been a philosophical change on the part of the government. I don't see an interest-rate change ahead, but if there is, I think it will likely be for lower interest rates."
ON INVESTMENT STRATEGY
"I invest in the out-of-favor sectors of the high-yield market. I look for companies that have issued bonds that are priced below their intrinsic value, have hit bottom, and are on their way up. I like the health-care sector, specifically Columbia/HCA Healthcare (COL); the energy industry, such as Pogo Producing (PPP); and the telecommunicatons sector, specifically Level III and Nextlink Communications (NXLK)."
ON A MARKET CORRECTION
"I'm fairly well protected in the event of a market downturn. Not only do I invest in sectors that are already in their own mini-recession but also I invest a portion of my portfolio in convertible bonds. Convertibles have defensive characteristics. If the stock goes down 25%, the convert could only go down 10%."
ON LOWER-QUALITY NEW ISSUES
"I only invest in larger issues with underlying equities. They are more liquid, have more disclosure, and are well-established with strong histories of operating earnings. Many of the lower-quality new issues are small companies with no long-term operations."
ON PAST JUNK-BOND-MARKET CRASHES
"There is no way we can repeat the 1989-90 junk-bond crash. Companies today are much less leveraged than in the past, and the market is much more highly diversified than it was."
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