Investment management firm DoubleLine Capital LP completed the initial public offering (IPO) of its close-end DoubleLine Income Solutions Fund (NYSE:DSL) on Friday.
Jeffrey Gundlach, chief investment officer and CEO of DoubleLine Capital will manage the operations of the new fund with the assistance of portfolio managers Bonnie Baha and Luz Padilla.
According to Gundlach, DoubleLine Income Solutions Fund (NYSE:DSL) aims to seek greater risk than DoubleLine Capital’s flagship fund DoubleLine Total Return Bond Fund (MUTF:DBLTX). The fund is “meant to fill out periphery of a bond portfolio in a one-stop shopping kind of way,” said Gundlach in an interview.
Gundlach believed that the greatest weighting near-term will be in the dollar-denominated emerging market corporate debt rates BBB and B or in the lowest-quality investment grade debt and higher-quality “junk” rated debt.
“That particular spot is my favorite spot in global fixed income. I think that sector of the market is too cheap relative to competing assets,” said Gundlach regarding the higher yields of bonds.
During its IPO, DoubleLine Capital’s Income Solutions Fund (NYSE:DSL) raised $2.3 billion from selling 92 million shares at $25 per share. The offering it is the second largest in the history of close-end bond fund IPO following PIMCO Dynamic Credit Income Fund (NYSE:PCI), which raised $3 billion in January.
DoubleLine Capital plans to invest 80 percent of the assets raised by DobleLine Income Solutions Fund (NYSE:DSL) in debt securities and other fixed-income assets worldwide such as in the emerging markets. The fund also plans to seek mortgage-backed securities or debt rate below investment grade including high-yield ‘junk’ bonds or bank loans.
Gundlach stated that his favorite asset classes are non-agency mortgage debt and bank loans issued in the United States. He also like dollar-denominated emerging market corporate bonds.
Based on the prospectus of DoubleLine Solutions Fund (NYSE:DSL), it will primarily hold three asset classes in the near-term. It will not invest more than 50 percent of assets in a single asset class except in U.S. Treasuries in a defensive scenario. It might use leverage of borrowed money slightly higher than 33 percent of its assets.
According to Gundlach, he still likes U.S. Treasuries because it is the only asset class capable of performing well in case riskier assets classes suffer. He expects the 10-year Treasury bond to yield 1.63 percent by the end of 2013. He acquired more long-term Treasuries last month compared with his purchases over the past four years.
In his comment regarding the $45 billion Treasury bond monthly purchases of the Federal Reserve, Gundlach said, “Treasury bonds are not going to explode higher in yield while the Federal Reserve is controlling them through quantitative easing.”
Meanwhile, Gundlach said that he is no longer shorting shares of Apple Inc (NASDAQ:AAPL) although he remains uncertain on the stock. He also noted that the stock is cheap but it is over-owned.