The strategy behind DoubleLine Total Return Bond (symbol, DLTNX) fund is simple. The fund's managers, led by Jeffrey Gundlach, invest in a blend of government-agency mortgage-backed securities and non-agency mortgage-backed bonds. The two types of bonds balance each other in terms of risk: Government mortgage debt carries no default risk but a lot of interest rate risk (interest rates and bond prices tend to move in opposite directions); non-agency mortgage-backed bonds have little interest rate risk but higher default risk. Since it launched in April 2010, the fund has outpaced all but four of its peers--funds that focus on intermediate-term bonds--with lower volatility.
The past year has been business as usual for the fund, a member of the Kiplinger 25,with one small change. Gundlach and his comanager, Philip Barach, promoted analyst Andrew Hsu to comanager. Hsu has been a member of Gundlach's team for years. "Andrew knows the portfolio inside and out," says Gundlach.
But the bond market has been a bit unusual. High-quality corporate bonds, a sector Total Return Bond doesn't own, gained 13.7% through the first eight months of 2019, nearly as much as the broad U.S. stock market. "That's interesting and also weird," says Gundlach. Corporate debt makes up 25% of both the Bloomberg Barclays U.S. Aggregate Bond index and the typical intermediate-term bond fund. As a result, Total Return Bond's respectable 7.5% gain over the past 12 months lags the 10.1% gain in the Agg index and trails 88% of its peers.
Falling interest rates in 2019 posed another problem for Total Return Bond. By early September, the 10-year Treasury yield had dropped a whopping 1.14 percentage points. Falling rates have pushed bond prices higher--good news for bond investors, especially holders of government debt. But Gundlach likes to keep Total Return Bond's duration, a measure of interest-rate sensitivity, below that of the Agg index. In late summer, the fund had a 3.5-year duration; the Agg, by contrast, had a 5.3-year duration. "Given the Total Return construct, I think we've performed quite well," Gundlach says.
See Also: Special: The Kiplinger 25
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