The Doubleline Total Return Fund (DBLTX) is one of the most impressive bond funds available. It has put up great returns and seems like it would do well whichever way interest rates go. The challenge to understanding the fund is its thousands (yes, thousands) of individual holdings. They are for the institutional investor and very esoteric.
The portfolio looks something like this: agency backed obligations (50.2%), non agency (22.7%), collateralized mortgage obligations (7.4%), collateralized loan obligations (4.4%), government securities (4.1%), and some other issues. The Semi-Annual Report as of November shows the holdings. The entire portfolio is $49.3 billion. A recent report from Doubleline as of Dec. 31, 2015 can be found here. The November and December numbers vary slightly.
What I'm trying to find out is what percentage of this portfolio is guaranteed. I know that Ginnie Maes are and Freddies and Fannies are not. In the presentation above, however, "Mortgage pass-through securities whose principal and interest guaranteed by the U.S. government agency including Fannie Mae or Freddie Mac..." So are these Fannies and Freddies guaranteed or not?
Morningstar will not rate the fund as management for Doubleline has gone incommunicado (at least with Morningstar, but not Barron's). CEO Jeffrey Gundlach feels that Morningstar sided with TCW after they shook hands and parted as dear friends.
The fund should do well in a rising interest rate environment. The duration is 3.65 and the average life of holdings is 5.37 years. If interest rates rise by 1%, the portfolio should only drop 3.65%. Much of this has to do with mortgage backed securities. If rates drop, home owners will refinance. If they rise, they will not refinance. And adding to the calculations, people move with some frequency, so the mortgages are not held for 30 years.
As most of the portfolio is AAA rated home loans, in theory, it should do well in a rising or falling rate environment. My question is what would have to happen for a worst case scenario? If home owners in mass defaulted on their loans, how would it affect this fund?
In the Semi Annual Report, there are thousands of individual issues. I have not gotten into their prospectuses at this time, but am looking. If you read this article and have access to literature on the individual pools, please let me know. I also have a message for Andrew Wilson, Fannie Mae's head of Media Relations.
Since April 6, 2010, the fund has averaged 8.05% a year. That nice return tells me that there is some risk. If it can average a nice profit like that, perhaps it could average negative 8% a year. One thing that impresses me about the I Shares is that the fees are only 47 basis points.
This article is just part one. I will be doing some more digging. Corporate and municipal bonds are my expertise, not mortgages and agencies. This will require some work.
