Today is the first time that there are related posts jointly published on pix and its big sister blog, the research puzzle. For those not familiar with the differences between the two sites, the research puzzle features essays on investment process and how the business works. This one always has a chart with some handwritten scribbles on it to illustrate an interesting facet of the market. Not a “buy” or “sell,” but context, perspective, and questions.
That introduction out of the way, the topic of both sites today is DoubleLine and its leader, Jeffrey Gundlach. The essay contemplates some of the issues involved when an investment presents degrees of difficulty that are outside the norm. That’s a description perfectly suited to Gundlach and DoubleLine’s flagship vehicle, the subject of the chart above. (The postings were spawned by a Wall Street Journal article by Ben Levisohn dealing with those themes, in which I was quoted.)
The top panel of the chart is what will dominate the attention of investors, especially since most don’t have the tools or training to really understand what’s going on in the strategy itself. Performance for fixed income funds in general has been great; this one (DLTNX, the fund class with the lowest required initial investment) has been stellar.
The fund does not have a stated performance benchmark in the prospectus. I have compared it here to the iShares Barclays Intermediate Government/Credit Bond Fund (GVI), since that is how Morningstar classifies it. However, this fund is much different in structure than other funds in that category, not only for the nature of the mortgages it holds but because there’s essentially no “credit” (in the sense of corporate debt) in it. You can see the performance has swamped the index fund.
Since Gundlach and Bill Gross vie for the “King of Bonds” title, I also included performance versus the main Pimco fund (PTRRX). There’s been no comparison — and the leg up in relative performance for Gundlach since July shows which of the divergent views of these famous money managers has been “right” of late.
The bottom panel shows the growth of assets (this is the total of the higher-minimum institutional fund, which has three-quarters of the assets, and DLTNX). The money will keep rolling in because of the performance — it always happens that way when a fund bolts out of the gate. But, as I assert in today’s essay, a higher-than-normal percentage of the holders don’t understand what they’re buying as well as they should, “retail” and “institutional” classes alike. (Chart: Bloomberg terminal.)