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The 10 Largest Bond Funds: Part II

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Yesterday I wrote to you about how the 10 largest bond funds are increasing risk by loading up on junk bonds. The only fund company of the group not doing this is Vanguard. No surprise there. Vanguard always seems to do the right thing for investors. But there’s another narrative inside this grouping of behemoths that I want to share with you today. Who is the biggest holder of junk and who will pay the price when markets turn?

DoubleLine Total Return bond fund has loaded its portfolio with 28% of its assets junk rated. You may recall this beauty of a quote from its manager. He said that investors “want exposure to these high-yield and distressed securities and they’ve become comfortable with what we’re doing.” Again, as I wrote to you yesterday, in my close to 20 years working with investors, no one is comfortable losing money. And that’s exactly what this fund is set up to do in a major way when credits turn.

But the big losers are not going to be the fund’s managers. They’ll be fine raking in their fat fees. It will be the firemen, police officers, and retired teachers that will take the hit. They’ve put their trust in the managers and the pension board to do the right thing with their hard earned money. But as is often the case in the institutional investing game, it’s simply a beauty contest to determine where money is invested.

DoubleLine Total Return happens to be the belle of the ball today. It has fattened up to $31 billion under management in only four years. Its assets have grown by 689% since inception. We all know how this fairy tale will end.

 

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.