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The Trouble at DoubleLine Was Predictable

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crystal ballFortune breaks the bad news to readers that Jeffrey Gundlach’s DoubLine Total Return Bond Fund is having its worst year ever. Jeff Wieczner writes:

DoubleLine CEO Jeffrey Gundlach’s flagship DoubleLine Total Return Bond Fund (DBLTX) is having its longest streak of underperformance on record, lagging most of its peers as well as the Barclays Aggregate Bond Index. After ranking second among comparable funds in 2015, the $61 billion fund now ranks in the bottom 7% so far in 2016, according to fund research firm Morningstar.

The poor returns come after years of stellar returns for Gundlach, especially after the financial crisis. Those returns had unofficially allowed Gundlach to rise to the title of “Bond King”—especially after the previous longtime “Bond King” Bill Gross of Pimco stumbled, and quit that firm for Janus Capital, taking only a small percentage of the assets he used to manage with him.

The trouble is, the collapse was predictable, and even predicted. I wrote back in 2014:

DoubleLine Total Return bond fund has loaded its portfolio with 28% of its assets junk rated. You may recall this beauty of a quote from its manager. He said that investors “want exposure to these high-yield and distressed securities and they’ve become comfortable with what we’re doing.” Again, as I wrote to you yesterday, in my close to 20 years working with investors, no one is comfortable losing money. And that’s exactly what this fund is set up to do in a major way when credits turn.

Everyone is fine with risk until it comes calling. Then investors realize they’re a lot less comfortable risking their money than they thought.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com