DoubleLine Fund Sees Record $3.5 Billion Outflow in December

Updated on
  • Total Return Bond Fund gained 2.2% in 2016, trailing index
  • Two other key DoubleLine funds had net inflows during month

Investors pulled a record $3.5 billion in December from Jeffrey Gundlach’s DoubleLine Total Return Bond Fund, according to Bloomberg estimates, and its annual performance trailed the benchmark index for the first time.

The $55.7 billion fund, which invests predominately in mortgage-backed securities, returned 2.2 percent in 2016, compared with 2.7 percent for the Bloomberg Barclays U.S. Aggregate index.

It was also the third consecutive month of net redemptions for the actively managed fund, which has helped fuel growth at Los Angeles-based DoubleLine Capital since 2010. The fund is run by Gundlach, who is DoubleLine’s chief executive officer, and Philip Barach, the firm’s president.

“Some intermediate-term bond funds, including DoubleLine Total Return Bond Fund, have seen outflows in recent months due to investors paring back some interest rate exposure and possibly also due to tax-related selling,” DoubleLine analyst Loren Fleckenstein said Tuesday in a telephone interview.

Taper Tantrum

“We saw this during the taper tantrum of 2013,” Fleckenstein said. “I’d note that unlike 2013, we now have funds with multi-year track records, such as the DoubleLine Shiller Enhanced CAPE Fund, our largest equity strategy, and the DoubleLine Flexible Income Fund, an unconstrained bond strategy, which are benefiting from reallocation in this environment.”

DoubleLine’s total assets declined to $101 billion as of Dec. 31 from about $106 billion Sept. 30, Fleckenstein said.

The previous record for redemptions at DoubleLine Total Return was $2.2 billion in December 2013, when investors were pulling money amid concerns that interest rates would rise after the so-called taper tantrum, when then-Federal Reserve Chairman Ben Bernanke signaled a reduction in central bank purchases of Treasuries and mortgage-backed securities.

DoubleLine Total Return outperformed 75 percent of its peers in 2016 and 93 percent for the past five years in the mortgage-fund category, with average annual returns of 4 percent, according to data compiled by Bloomberg. In the intermediate-term bond fund category, it beat 94 percent of peers over five years but trailed 78 percent last year, according to Morningstar Inc.

“Since the bottom of the 10-year yield on July 8, DoubleLine Total Return has outperformed the Bloomberg Barclays index by more than 200 basis points, net of fees,” Fleckenstein said.

The fund missed gains on corporate high-yield debt that buoyed some other intermediate-term bond funds in 2016.

“Our ‘total return bond’ strategies have always been run as MBS-centric strategies without corporates,” Fleckenstein said.

Gundlach has warned of rising defaults amid persistent low oil prices.

Core, CAPE

The $7.7 billion DoubleLine Core Fixed Income Fund, which has higher allocations to government and corporate debt, had about $87 million in net inflows in December, according to Bloomberg estimates. That fund, run by Gundlach and Jeffrey Sherman, returned 4.1 percent last year, beating 71 percent of its Bloomberg peers.

The $2 billion DoubleLine Shiller Enhanced CAPE fund, which invests in fixed income and undervalued stock sectors, had estimated inflows of $260 million, the largest since its inception in October 2013. The fund returned 20 percent in 2016 and has a three-year average of 14 percent, outperforming 99 percent of its Bloomberg peers.

Flow estimates are based on the change in assets over the month that aren’t accounted for by performance or reinvested dividends. The numbers may vary from actual figures and from estimates compiled by other data providers. DoubleLine discontinued its practice of releasing monthly flows this month.

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