Borrowing from the political adage, “It doesn't matter what you say about me, as long as you spell my name right,” Jeffrey Gundlach's DoubleLine Total Return Bond Fund (DBLTX) is riding on a wave of “not-ratable” glory.
Even though Morningstar Inc., for the second year in a row, has released
its analysis dubbing the fund not-ratable, analyst Sarah Bush is unable to get around pointing out that it is a pretty good fund.
In her analysis, published Thursday, Ms. Bush wrote that the fund “has many strengths, starting with manager Jeffrey Gundlach's successful record managing mortgage portfolios.”
She recognized Mr. Gundlach as “one of the industry's most skilled practitioners,” while introducing the hitch that has left the $46.7 billion, five-star-rated flagship fund in the awkwardly-suspended state of “not ratable.”
In short, it boils down to an ongoing, but potentially cooling,
rift between Morningstar's fund analysts team and representatives from DoubleLine.
“Over the past three years, we have contacted DoubleLine on numerous occasions in an effort to do our due diligence on the firm's investment process and portfolio construction,” Ms. Bush wrote. “As the firm has become more established, we've also sought more information about succession planning and risk controls.
“DoubleLine has refused or ignored these requests, and the firm's public filings and communications do not provide sufficient information to issue a rating,” she continued. “As a result, the fund carries the Not Ratable designation.”
UNUSUAL MOVE
A year ago,
when Morningstar initially dubbed the fund not ratable, there was considerable buzz around the unusual move, but very little reaction from the folks at DoubleLine.
“In a sense, it's accurate to say the fund is not ratable in that Morningstar fund writers are acknowledging that they don't understand our fund,” DoubleLine analyst Loren Fleckenstein said at the time. “For two years, Morningstar writers mischaracterized our fund and we still kept an open-door policy in trying to work with them, but in 2012 we finally threw in the towel and decided to have no further communication with the fund writers.”
Regarding Thursday's reiteration of the not ratable status, Mr. Fleckenstein said, “I can understand why Morningstar.com classifies the fund as not ratable if their process requires they speak with fund management to reach a subjective rating on a fund, as we have not spoken with their fund writers for three-and-a-half years.”
Mr. Gundlach was not made available to comment, but when the issue was presented to him earlier this week while he was speaking at an investment conference, he stated, “When you stop bashing your head against the wall, you feel better.”
ASSETS CLIMB, PERFORMANCE SOLID
Even if the communication with Morningstar analysts wasn't exactly that uncomfortable, it appears to be a moot point to investors, because the fund's assets have grown by more than 37% over the past year, and the performance has continued to impress even the Morningstar analysts that refuse to rate the fund.
This year through Thursday, the fund is up 1.3%, compared with 0.07% gain for the intermediate-term bond fund category over the same period.
Over the past 12 months, the fund is up 3.6%, while the category average is up 1.3%.
For her part, Ms. Bush said she has continued to reach out to DoubleLine, but that the company is still not responding.
In terms of when the fund might be able to earn a rating from Morningstar, Ms. Bush said, “We're looking for more detailed information from DoubleLine,” and added that, “We're really asking for this information on behalf of advisers and investors who can't do that on their own.”
