DoubleLine Capital LP plans to launch an enhanced index fund based on Yale University economics professor Robert Shiller's cyclically adjusted price-earnings ratio.
The DoubleLine Shiller Enhanced CAPE Fund will use derivatives — either swaps or futures contracts — to track the Shiller Barclays U.S. Sector Total Return Index, which invests equally in the four most undervalued U.S. stock sectors based on their CAPE ratio and their price momentum over the past 12 months.
Because the fund is using derivatives, which don't require a large investment, to track the index, bond superstar Jeffrey Gundlach, DoubleLine's founder and chief executive, and co-manager Jeffrey Sherman will have the ability to invest in a range of fixed-income securities with the majority of the fund's assets to boost returns.
The fund also plans to use leverage, according to a filing with the Securities and Exchange Commission.
It is a similar strategy to the one used by Pacific Investment Management Co. LLC's IndexPlus series of funds, one that has proved successful.
The $2.7 billion Pimco Fundamental Enhanced IndexPlus Absolute Return Fund (PXTIX), for example, is in the top 1% of large-cap-blend funds over the past three- and five-year trailing periods, according to Morningstar Inc.