Jeffrey Gundlach's DoubleLine opens its first alternatives fund

In a year when its peers lost 15% investing in commodities, DoubleLine wades in with a long-short strategy

Aug 31, 2015 @ 1:37 pm

By Trevor Hunnicutt

DoubleLine Capital, the fast-growing mutual fund firm run by Jeffrey E. Gundlach, opened its first commodities-based investment product to advisers Monday.

The DoubleLine Strategic Commodity Fund comes during a brutal period for assets in the category, from oil, natural gas and gold to copper, cocoa, coffee and corn. All have seen their values on the open market slashed in the last year. And money managers have struggled to contain the damage: The average U.S. mutual fund tracking the market lost 14.5% of its value this year, through Friday, according to Morningstar Inc.

“The world economy is slow, and most of the drop-off in demand is from China, but then it ripples through to other developed economies, like New Zealand and Australia, which export a lot of stuff to China,” said David Edwards, a financial adviser and president of Heron Financial Group. “However, the long-term trends in commodity prices have to be up because there are 7 billion people on this planet, and they all want stuff. They want mopeds and cell phones and televisions and refrigerators, and there's only so much copper in the ground. There's only so much steel in the ground. There's only so much oil in the ground.”

Jeffrey J. Sherman, a protégé of Mr. Gundlach's who joined DoubleLine from TCW Group Inc. after Mr. Gundlach's acrimonious 2009 split from TCW, is managing the new commodities fund. It's the firm's first to focus primarily on an asset other than stocks and bonds.

The fund will take long and short positions in commodities-tracking assets, essentially betting that some assets will rise in value while others fall. The fund's positions also will attempt to exploit the fact that some futures contracts exhibit price appreciation as they approach expiration, a phenomenon known as backwardation, according to a DoubleLine marketing document.

Mr. Edwards said he would not allocate to a long-short commodities strategy because of the difficulty of having complete foresight into the value of commodities and the timing of their price swings.

“What they are saying is, we are clever enough to separate out the short-term imbalances from the long-term trend,” he said. "Good luck. I'm far too humble to think I could do that myself.”

But DoubleLine is on a high. So far this year, the firm has posted the 10th-best sales figures — among fund companies in the U.S. — for its fixed-income-focused fund lineup, according to Morningstar (though DoubleLine disputes the research firm's sales estimates).

Year to date, DoubleLine says it has won $8.4 billion in new money from investors. Seventy-four percent of those flows went to the DoubleLine Total Return Bond Fund (DLTNX), run by Mr. Gundlach, the star investor and DoubleLine chief executive, and Philip Barach.

It wasn't immediately clear which securities brokerages plan to make the DoubleLine commodities fund available. Retail shares, which carry the ticker DLCMX, are being offered with annual expenses totaling 1.36%. An institutional share class (DBCMX) is priced at 1.11%.

DoubleLine has been working to expand its palette beyond fixed income. In 2013, they launched a growth-stock fund and an exotic strategy based on the stock-valuation methodologies of Nobel laureate and Yale University economist Robert J. Shiller. Mr. Gundlach has been managing that fund, the DoubleLine Shiller Enhanced CAPE Fund (DSENX), with Mr. Sherman. An institutional share class of the fund, which strips out distribution fees that erode performance, is up 3.2% for the year, through Friday, ahead of 97% of similar funds, according to Morningstar.

DoubleLine also is in the bidding for RS Investment Management Co. — which manages a number of investment strategies, including several focused on stocks — according to media reports citing unnamed people with knowledge of the negotiations. That bid was first reported by Reuters.


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