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The Trouble with this Bond Fund

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You could almost see the trouble coming at Double Line Capital’s largest bond fund Total Return. Actually I did as I wrote to you back in 2014.

Turns out chasing performance has a shelf life.

Investors are taking on more risk—and are doing it in a major way. Bond funds, which should be your anchor-to-windward money, are loading up on junk. The below investment grade waste piling up in the       10 largest bonds funds is shocking. We’re not talking small potatoes here. These are the big dogs.

“Who wants an index fund that yields 2%?” said Jeffrey Gundlach, manager of the Total Return Bond fund at DoubleLine Capital LP. Investors “want exposure to these high-yield and distressed securities and they’ve become comfortable with what we’re doing,” he told the WSJ.

I’m not buying it.

In my close to 20 years in speaking with investors, they are never comfortable with losing money, period. It’s crucial that you pay attention to how Vanguard bond funds, which comprise five of the top ten slots, have basically zero exposure to junk. That’s one of the many reasons I advise some of these funds for clients and the same for you.

From the WSJ yesterday:

Jeffrey Gundlach built one of the most successful new bond funds ever, amassing $61.7 billion of assets at the DoubleLine Total Return Bond Fund over just six years.

But during the past year something else happened: Some customers began to leave. Assets under management at the fund dropped 13% from their peak last September to $53.6 billion as of July 31.

Read more here.

 

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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.