A Top Bond Manager Explains His Bottom-up Approach

Lon Erickson, CFA, is a portfolio manager and managing director for Thornburg Investment Management. He joined Thornburg in 2008 and was made portfolio manager and managing director in 2010.

Lon earned a BA in business administration with a minor in economics from Illinois Wesleyan University and an MBA from the University of Chicago's Graduate School of Business. He is a CFA charterholder. Prior to joining Thornburg Investment Management, Lon spent almost 11 years as an analyst for State Farm Insurance in the equity and corporate bond departments.

Lon oversees four mutual funds at Thornburg: Low Duration Income Fund, Limited Term U.S. Government Fund, Limited Term Income Fund, and Strategic Income Fund.

I spoke to Lon on September 25.

You can also listen to this interview as a podcast here.

Tell me about your role at Thornburg, the management style you employ and the funds you oversee.

I am a portfolio manager for a lot of different funds with different strategies. I cover risk-free U.S. Treasury securities, asset-backeds, mortgage-backeds, the high-yield market and even some foreign markets and currencies. We take a very bottom-up perspective. We look at each individual security to manage the quantity, and the probability and timing of the cashflows. That way we can put each security on equal ground so that we're able to make a relative-value comparison across things that are pretty different.

Ultimately, we build our portfolios brick-by-brick from the bottom up. That's not to say we totally discount the larger, macro, top-down environment. It's just that our views are typically built from that mosaic process by looking at individual securities. We blend those together to create very well-diversified portfolios.

In the fixed income world, the returns are very asymmetric. You can either get zero or you get the return that the yield promises. If you're going to take a lot of risk, you should look at the stock market where you can make many multiples of your money.