DoubleLine Strategic Commodity September 2018 Webcast Slides

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DoubleLine Strategic Commodity webcast slides for the month of September 2018.

Rationale for Investing In Commodities

  • Diversification benefits relative to traditional asset classes
    • Potential low–to-uncorrelated return source to traditional asset classes
  • Potential to hedge against unexpected inflation
    • Physical assets have tended to move in line with broad inflation measures
  • Potential incremental returns from each individual commodity’s market structure
  • Commodity supply and demand is correlated to the cyclicality of the global economy

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Potential Diversification Benefits of Commodities

  • Broad commodities have shown low correlations to other broad asset classes
  • The average correlation is 0.17

Commodities as a Possible Inflation Hedge

  • Commodities can also be a hedge against unexpected inflation
    • We define unexpected inflation as YoY change in YoY inflation
    • Example: YoY CPI was 1.6% on December 31, 1998 and YoY CPI was 2.7% on December 31, 1991 making unexpected inflation 1.10% for that year
  • Commodity performance over the long term rises and falls with unexpected inflation

DoubleLine Strategic Commodity

A Case for Commodities

  • Bloomberg Commodity Index (BCOM) adjusted for inflation
    • Relatively low during the recent commodity crisis at 55.91 on February 29, 2016.
    • Current level as of August 31, 2018 was 58.14 making it low enough to be a potentially good entry point.

DoubleLine Strategic Commodity

DoubleLine Strategic Commodity Fund (I Share)

vs. Individual Commodities Cumulative Performance

May 18, 2015 – September 21, 2018

DoubleLine Strategic Commodity

Allocating to Commodities

DoubleLine Strategic Commodity

DoubleLine Strategic Commodity Fund’s Approach

DoubleLine Strategic Commodity Fund is a long-biased commodity fund that tactically allocates to a long-short dollar-neutral commodity strategy when a 100% long commodity allocation is unattractive.

DoubleLine Strategic Commodity

Performance of Various Commodity Betas

DoubleLine Strategic Commodity

How the MS BFMCI Allocates Across Sectors

DoubleLine Strategic Commodity

Limitations of Long-Only Commodity Exposures

  • There are limitations to being long commodities 100% of the time.
    • Due to the inherent volatility of the broad commodity market, there can be periods where index investors experience substantial drawdown.
  • From January 31, 2000 to August 31, 2018, the maximum drawdown for select long-only commodity indices were:
    • BCOM: -69.03%
    • S&P GSCI: -82.93%
  • One possible way to mitigate some of the drawdown risk in a long-only strategy is to include short commodity positions:
    • However, this also limits the upside potential in a rising commodity market.

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