- Morningstar restores rating it dropped in 2014 after dispute
- Neutral rating means not “enough conviction to recommend it”
Morningstar Inc. restored its “neutral” rating for Jeffrey Gundlach’s DoubleLine Total Return Bond Fund, two years after dropping it because the bond manager had stopped providing access in a dispute.
Morningstar gave positive ratings for the fund’s performance, fees and the people who run it, according to a research report published Monday. The firm gave neutral ratings in two other areas, the investing process and the parent company, saying it lacks details on these points.
“We still have questions about the prudence and repeatability of the fund’s process and the extent to which its adviser, DoubleLine Capital Management, is demonstrating its commitment to shareholder interests,” Morningstar analyst Sarah Bush and Jeffrey Ptak, head of global manager research, wrote in a separate note. “Taken together, the fund’s Neutral rating means we do not have enough conviction to recommend it.”
Morningstar dropped its neutral rating in 2014, about two years after DoubleLine declined to answer due-diligence questions. Their disagreement centered mainly on Morningstar’s view that Total Return, while producing outstanding results, had taken relatively large risks. Bush wrote today that some of those concerns have faded as investments in “esoteric mortgage-backed securities,” which in late 2010 accounted for close to a quarter of the fund, have declined relative to assets as the fund grew.
“We think it makes more sense to assign a rating to the fund that reflects what we know rather than, in effect, withhold a rating absent complete information,” the analysts wrote.
The $61 billion fund, which mostly invests in mortgage-backed securities, is up 3.5 percent this year through July 8 and has outperformed 97 percent of peers over the past five years, according to data compiled by Bloomberg.
Jami Schlicher, an outside spokeswoman for DoubleLine, didn’t immediately reply to a request for comment.
Morningstar assigns bronze, silver and gold ratings to funds it endorses, based on criteria including performance, investing process, management personnel, parent company and price, including management fees.