Morningstar's newly crowned money manager of the year is 'cautious' because of trade tensions

Key Points
  • Dan Fuss, winner of the Morningstar Outstanding Portfolio Manager award, tells CNBC that the Federal Reserve is "trapped by the circumstances" as tensions between China and the U.S. increase.
  • "I don't want to sound bearish, but we're cautious."
Dan Fuss, vice chairman of Loomis Sayles & Co.
Christopher Goodney | Bloomberg | Getty Images

CHICAGO — The Federal Reserve is caught between a rock and a hard place as tensions with China increase, according to an award-winning portfolio manager.

"The Fed is trapped by the circumstances," Dan Fuss, manager of the Loomis Sayles Bond Fund and winner of the Morningstar Outstanding Portfolio Manager award, told CNBC. Fuss received the award on Thursday at Morningstar's annual investment conference. Morningstar said Fuss received the annual award for his "value-driven, often contrarian" strategy.

"You're getting diversions of Athens and Sparta right now given how things are playing out not just in trade — although that is the most visible— but through one-offs and other activities," he said, referring to China and the U.S. "I don't want to sound bearish, but we're cautious."

Both countries have recently ratcheted up trade tensions after President Donald Trump threatened to slap additional tariffs on Chinese imports. Trump tried to assuage these concerns, saying on Thursday that a deal with China was still possible. He noted, however, that the tariffs are an "excellent" alternative to a deal.

This has sent ripples through financial markets. In equities, the Dow Jones Industrial Average is down 2.5% this week. The benchmark 10-year Treasury yield is down to around 2.45% from 2.55% at the start of the week.

Investors had priced in a trade deal ahead of this week as both sides appeared to make progress on that front. Trade fears were one of the key factors that drove equities down last year.

Fuss' fund has more than $10 billion in assets under management and has outperformed 80% of rivals over the past 10 years, Morningstar data shows. In that time, the fund has returned 7.8% to investors, 4 percentage points above the category average.

However, he said that opportunities are harder to come by nowadays as spreads remain narrow. "We're waiting for opportunities to develop one by one. They're not devolving in mass, but every once in a while you get a slight dislocation somewhere."

He told CNBC's "Power Lunch" he has a cash-equivalent position in the "high teens."

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