Jeff Gundlach Asset Allocation Webcast – Doubleline Recap

Jeff Gundlach Asset Allocation Webcast – Doubleline Recap

Jeff Gundlach: Fixed Income Overview

• “Bloodless Verdict of the Market”
  • Most bond income sectors have performed well this year excluding Emerging Markets (EM) denominated in local currency
  • We believe U.S. bonds offer relative value over European bonds
  • CCC-rated high yield (HY) lagged higher quality bonds; which is closely tied to the returns of the U.S. stock market which has done little this year
  • 2-year U.S. Treasury (UST) yields appear to have bottomed 4 years ago
  • Mr. Gundlach continues to monitor the 30-year UST which refuses to break below the 2.45% level. If the yield doesn’t break below that level, we may see choppiness in the bond market.
• Relative Valuations
  • Investment Grade corporate bonds– remain historically overvalued; DoubleLine asset allocation products have minimal exposure to IG. The valuation has worsened due to the long duration characteristics of the asset class.
  • We believe HY bonds – Fairly valued; DoubleLine increased exposure across our asset allocation products after the sector cheapened from its historically high over-valuation in 2013. Mr. Gundlach remains copasetic about defaults in the corporate
  • We believe Bank Loans – slightly overvalued and less attractive than high yield; maturity profile has also been pushed out to 2020 and 2021
  • We believe Mortgage-backed securities (MBS) – At average valuation
  • Convertible bonds – currently two standard deviations rich; if this really breaks down we are likely looking at a substantial correction, which may broadly be the case across risk assets
  • We believe Emerging Markets – average valuation which is represented by an average allocation
  • We believe TIPS – fairly valued; inflation does not appear to be an issue any time soon so DoubleLine remains light on TIPS exposure
  • We believe Municipals – relatively attractive and the Core Fixed Income Fund has received a 4% allocation

The DoubleLine Core Fixed Income Fund (DBLFX/DLFNX)

• Fund Characteristics
  • Broadly diversified with lower duration (4.60 years as of 3/31/15) than the Barclays Aggregate Bond Index (5.45 years as of 3/31/15)
  • 24% below Investment Grade with a majority of that coming from the non-Agency MBS
• Portfolio Composition as of 2/28/2015
  • 28% MBS, 21% Government,11% IG corporates, 8% High Yield corporates, 6% Commercial MBS (CMBS) and 3% Bank Loans

The DoubleLine Flexible Income Fund (DFLEX/DLINX)

• Fund Characteristics
  • Shorter Duration (1.15 years as of 3/31/15) than the Core Fixed Income Fund (4.60 years of 3/31/15)
• Portfolio Composition as of 2/28/2015
  • 24.0% non-Agency MBS, 19% International Emerging Markets, 19% CLOs and 11.7% High Yield corporate
  • All U.S. Dollar denominated
  • 40% of the fund is invested in floating rate securities

Question and Answer

• U.S. Treasuries
  • The long-end appears to be welcoming a rate hike. This idea was corroborated with a strong jobs report last month when bonds rallied.
  • Short term rates will likely have a hard time ending the year lower

See full PDF below.