Jeffrey Gundlach’s firm DoubleLine Capital has joined forces with Nobel laureate Robert Shiller to create one of the year’s best-performing large-cap value funds. According to a report from Julia Segal of Institutional Investor, the fund demonstrates the way the financial industry is dealing with investors’ disillusionment with active money managers.
Fund tries to avoid mistakes
The DoubleLine Shiller Enhanced CAPE fund is what’s called a smart beta product. The fund utilizes quantitative algorithms to build investment portfolios. The algorithms are designed to help the fund avoid some of the most common behavioral mistakes by programming certain rules right into them.
Smart beta funds use various quantitative techniques in order to hone in on value, momentum or other factors. They differ from index funds, which give portfolios exposures to stocks by following a particular index like the S&P 500.
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How the DoubleLine Shiller Enhanced CAPE fund works
According to Institutional Investor, the fund follows the Shiller Barclays CAPE US Sector TR USD index. Barclays developed that index to implement Shiller’s investing philosophies in the large-cap value sector. The reason Shiller created the CAPE (cyclically adjusted price-earnings) ratio was to figure out if the markets are under or overvalued.
In order to do this, Shiller examined the S&P 500 dating all the way back to 1871 up through the current day. He decided that his ratio is more valuable than the typical one-year price to earnings ratio most investors follow because it utilizes ten years of data about companies’ earnings per share.
Shiller fund does well
Institutional Investor reports that the fund has already been doing well in the short time it has existed. Morningstar lists the fund in the top 1% of performers in its large-cap value category. The DoubleLine Shiller Enhanced CAPE fund has been in existence since October 2013, and since then, it has posted a 19.72% return.
DoubleLine portfolio manager Jeffrey Sherman told the website that their partnership with Shiller makes a lot of sense because their investment team follows a value approach that isn’t usually associated with bond pickers in selecting fixed-income securities. They’ve done this for a couple decades. Shiller’s focus has been on the behavioral side of investing as he exposes common errors made by investors that result in underpriced stocks.