Category: Core Bond Funds / Short Duration Funds
LB Rating: ***** 5 Stars
Last Updated: 6 /17 /2013
Summary: The Double Line Total Return Bond Fund has been knocking the cover off the ball. What makes this fund unique is the average duration of its portfolio, which is just a tad above one. This means if interest rates rise, the fund will not lose much value. This is especially true when compared to other core bond funds. If you are worried about rising interest rates causing bond values to drop, the DoubleLine Total Return Fund should be your number one choice.
The fund has been around only for 3 years. However, the fund’s manager, Jeffrey Gundlach built up an impressive track record managing the TCW Total Return Fund. The big question surrounding the fund over the last year (how will the fund cope with tens of billions of dollars flowing into it?), has now been at least partially answered. The fund’s performance has been great even though its now a much larger fund, with around $40 billion under management.
Commentary: This fund is different from any other core bond fund. It does not hold Treasuries or Corporate bonds. Instead the focus is on Jeffrey Gundlach’s specialty, Mortgage Backed Securities (MBS). Most bond funds which hold MBS stick primarily to super safe Agency MBS. DoubleLine’s current portfolio is almost evenly split between agency MBS (28%) and non-agency MBS (27%). Non-Agency MBS carry a significantly higher yield than their agency counterparts.
In researching this article, we spoke to a source inside DoubleLine to better understand why they hold so much non-agency debt. He pointed out that a balance of agency and non-agency MBS made the fund less volatile. Mortgage pre-payment is bad for holders of Agency MBS (that sell at a price above face value). Mortgage prepayment is good for holders of non-agency MBS (that sell at a discount to face value). Non-Agency MBS serves as a hedge against prepayments.
Short-Term Performance: Excellent Since its inception in 2010, the DoubleLine Total Return Bond Fund is up 9.4% per year. Over the last year, the fund is up 5.5% which is amazing considering the overal bond market has been basicly flat over that time.
Long-Term Performance: Special The fund has no long-term track record. However, Jeffrey Gundlach, the main portfolio manager has several decades of experience managing a similar type portfolio with strong results.
Risk Level Relative To Returns: Excellent The DoubleLine Total Return Bond Fund has very limited exposure to rising interest rates. The credit picture is more complicated. Around ⅔ rds of the portfolio is in AAA rated securities. However, about ⅓ of the portfolio is in a combination of asset backed, commercial mortgage backed, and non-agency mortgages that carry junk credit ratings. While there may be a risk of default, these securities all have real collateral behind them that can be sold to repay bondholders.
Fees: Good. No sales load and 0.74% expense ratio. If you have $100k to invest, you can buy the institutional shares, which have an expense ratio of 0.49%. You can learn more about bond mutual fund fees here.
Manager Tenure: Special Jeffrey Gundlach has been called the “new bond king” by Bloomberg BusinessWeek. While we are not sure if the old bond king (Bill Gross) would agree, institutional investors are flocking to DoubleLine. As Gundlach is an owner of DoubleLine, and at 52 a relatively young man, he will probably be managing the DoubleLine Total Return Bond Fund for next 10 to 20 years.Want to learn how to generate more income from your portfolio so you can live better? Get our free guide to income investing here.