The doors of one of the mutual fund industry's most popular offerings may soon be closing to new investors. DoubleLine Capital CEO Jeffrey Gundlach tells U.S. News that it's only a matter of time before the company's flagship fund, DoubleLine Total Return Bond (DLTNX), stops accepting new money.
For DoubleLine, the last two and a half years have been a whirlwind of growth. The company launched its first mutual fund in April 2010. Currently, it has more than $53 billion in assets under management. In 2012 alone, DoubleLine's asset base more than doubled, according to the mutual fund research firm Strategic Insight. Businessweek labeled it the "fastest-growing mutual fund startup in history."
In light of his company's rapid rise, Gundlach says he's preparing to step on the brakes. "When we started the company, our stretch goal was to reach $50 billion of [assets under management] within three years," he says. "We do not have a goal of trying to reach $100 billion any time in the foreseeable future."
With that in mind, Gundlach says he expects to close DoubleLine Total Return Bond to new investors in late 2013 or early 2014. Gundlach says closing the fund, which currently has $38 billion in assets, is necessary to keep it at a manageable size.
When funds become too bloated, managers lose their ability to nimbly navigate the market and often become forced to invest in subpar holdings just so they can put their swelling assets to work. "I don't think we can add another $50 billion to [Total Return Bond] and still manage it the way we want to mange it," Gundlach says. "What you really don't want to do is what the young guys do, and that is take every single dollar that is dangling in front of you."
The reason behind DoubleLine's meteoric growth is simple: Gundlach has a stellar track record of navigating the bond market--in particular, the tricky and sometimes volatile landscape of mortgage-backed securities. This record long predates the founding of DoubleLine and stretches back to the 1980s when Gundlach, a Yale Ph.D. dropout who had moved to the West Coast to play the drums in a rock band, joined the asset management company TCW. Gundlach remained at TCW until he and the company underwent an ugly breakup in late 2009. Shortly afterward, flanked by several former TCW employees, Gundlach started DoubleLine.
Looking ahead to 2013, Gundlach says he doesn't expect much excitement in the mortgage market. "It should be a fairly benign place in 2013," he says. "Opportunities will be very much in security selection as opposed to beta." He predicts that the same will hold true for the rest of the bond market. "There's nothing unique about the lack of interesting developments in the mortgage market. I think that corporate bonds are even less interesting ... and emerging markets debt is really getting [to be] fully priced."
Although Gundlach expects smooth sailing in the short term, he paints a grimmer picture of the bond market in the long term. "The next big move in fixed income will be a negative one. It will either be rising interest rates ... or it will be a credit meltdown," he says. Meanwhile, while he finds Washington's current focus on keeping spending in check to be "reassuring" and probably beneficial to the bond market, he is skeptical of lawmakers' ability to follow through on their promises to reduce the country's debt. "In the short term, I'm not concerned about the political situation," he says. "In the longer term, I couldn't be more concerned ... It's not the next move in the chess game [that worries me]. It's the move after."
As for DoubleLine, the next move is expanding into new markets. Filings with the Securities and Exchange Commission show that DoubleLine has five new fund offerings, including three stock mutual funds, in the works. Even as it expands, though, DoubleLine has already taken steps to keep asset growth in check. Recently, for instance, the company closed its hedge fund strategy to new investors. The company's Strategic Income fund (RNDLX), which it runs jointly with RiverNorth, is also closed to new investors.
As for DoubleLine Total Return Bond, Gundlach says it's too early to predict how long the fund, once closed, will remain off limits to new investors. "Closing something is sort of an abstract idea," he says. He suggests that if new opportunities were to emerge and make it feasible to put more money to work, he would consider reopening the fund. "In the first quarter of 2009, I probably could have invested something close to $1 trillion," he says. "[But] those periods like early 2009 don't happen all that often."
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