Gundlach prepares to challenge Gross on a new front

DoubleLine files with SEC for its first enhanced-index fund

Aug 16, 2013 @ 10:19 am

By Jason Kephart

Jeffrey Gundlach and Bill Gross have been wrestling over the bond king crown for more than a decade, but they are about to start competing in a new area: enhanced-index funds.

Mr. Gundlach's DoubleLine Capital LP filed an initial prospectus with the Securities and Exchange Commission Thursday for its first enhanced-index fund.

Such funds use derivatives, likely swaps or futures contracts, to get the returns of an index. Because derivatives don't require a lot of capital, the majority of the fund's assets are free to be invested in a range of bonds to boost the fund's overall performance beyond the index's return.

It is a formula that Mr. Gross' Pacific Investment Management Co. LLC has used to great success.

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.

Its 16% annualized five-year return trumps the S&P 500's 7% returns and the 10% returns of the $2.2 billion PowerShares FTSE RAFI U.S. 1000 ETF (PRF), which tracks the same underlying index, without the added returns of the bond portion.

DoubleLine's first enhanced-index fund will track the Shiller Barclays CAPE U.S. Sector Total Return Index, which is built around Yale University economics professor Robert Shiller's cyclically adjusted price-earnings ratio.

Read also: Gundlach dips his toe into uber-indexing

The index 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. Historical returns for the index weren't immediately available.

Mr. Gundlach and co-portfolio manager Jeffrey Sherman will manage the fund's bond holdings.

The fund also intends to use leverage, according to the SEC filing.

This isn't the first foray into equity investing for DoubleLine, which had more than $56 billion of assets under management as of June 30.

The company launched the first of its three actively managed equity funds just over four months ago.

Although it is still early, the DoubleLine Equities Growth Fund (DBEGX) and the DoubleLine Equities Small Cap Growth Fund (DBESX) are off to good starts, having outperformed their respective benchmarks.

The DoubleLine Equities Technology Fund (DBETX) was just launched last week.

Still, the funds haven't attracted much in the way of assets yet. The small-cap fund has about $12 million and the growth fund has about $1.3 million, which shouldn't be surprising, given how new the funds are and the fact that DoubleLine is best known for bonds.

Given the general disdain for actively managed mutual funds in general, however, an enhanced-index fund could be much more appealing to investors.

Actively managed equity funds have had net outflows of more than $350 billion since the financial crisis as investors, burned by underperformance during the crash, turned to index funds in droves, according to Lipper Inc.

At Pimco, which also offers both enhanced-index funds and actively managed equity funds, the enhanced-index funds have proven the bigger draw.

The company's four IndexPLUS funds have a total of more than $12 billion in assets. Its actively managed equity funds, the first of which was launched in 2010, have about $3.5 billion total.

Equities have taken on greater importance at bond shops this year as investor fears over rising interest rates cause a loss of faith in intermediate-term bond funds.

In June, Mr. Gundlach's flagship $27.6 billion DoubleLine Total Return Fund (DBLTX) had its first month of net redemptions since its launch in 2010, after interest rates spiked about 100 basis points in two months.

That is despite the fact that the fund outperformed the Barclays Aggregate benchmark by more than 200 basis points year-to-date, according to Morningstar Inc.


What do you think?

View comments

Recommended for you

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Schwab's Clark: How next-gen can position themselves for success

How can the next generation position themselves for success in the industry? Our student correspondent from Texas Tech, speaks with Bernie Clark to find out.

Latest news & opinion

Nontraded BDC sales in worst year since 2010

The illiquid product's three-year decline is partially due to new regulations and poor performance.

Tax reform debate sparks fresh interest in donor-advised funds

Schwab reports new accounts up 50% from last year, assets up 33%.

Nontraded REITs to post worst sales since 2002

The industry is on track to raise just $4.4 billion, well off the $19.6 billion it raised just four years ago, as new regulations hinder sales.

Broker protocol for recruiting a boon for clients

New research finds advisers whose firms have joined the agreement take better care of customers.

Meet our 2017 Women to Watch

Introducing 20 female financial advisers and industry executives who are distinguished leaders, advancing the business of providing advice through their creativity and hard work.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print