Former high-flying fund now shunned by investors

Unit holders are jumping ship over slowing returns and concerns with the manager

Former high-flying fund now shunned by investors
Sometimes, having a stellar record in the early years can put a fund at a disadvantage later on.

Just take the case of the DoubleLine Total Return Bond Fund. Built by Jeffrey Gundlach, it amassed a total of US$61.7 billion worth of assets in just six years. However, after peaking in September, the fund’s AUM dropped 13% to US$53.67 billion as of July 31, according to the Wall Street Journal.

Data from Morningstar indicates that over that time, investors pulled US$8.5 billion from the fund; meanwhile, funds in the same category saw inflows of 7.2%. Outflows from the DoubleLine fund were also reported in each of the past nine months, although DoubleLine said it has netted inflows of US$230 million so far in August.

Although the fund has performed solidly overall, some investors have said they are leaving because they no longer see it going at its previously white-hot pace. Individual investors, who helped the fund grow but tend to be quicker to exit compared to institutions, are among those abandoning the fund.

Over the past three- and five-year periods, the fund bested 90% of rival funds; in 2017, however, it’s outdoing 59% of its peers, achieving at 3.15% gain through Aug. 17 according to Morningstar.

“This is part of having exceptional returns—at some point there will be less-than-exceptional returns,” A. Michael Lipper, who advises investors in mutual funds, told the Journal.

“There are only so many opportunities for actively managed funds,” a spokeswoman from DoubleLine said. “DoubleLine stopped marketing the fund two years ago, and the firm is pleased with where the asset level is.”

Some investors switched to better-performing funds in its shelf, including the DoubleLine Flexible Income Fund, which has outdone 58% of rivals and achieved net inflows of US$418 million so far this year. The firm has also performed well generally, with overall assets reaching an all-time high at US$111 billion.

The Total Return Bond Fund is mostly invested in mortgages, in accordance with its guidelines. Mortgages saw gains during the post-2008 recovery, but those have since plateaued. Corporate bonds, which have led the bond market, compose a small portion of the fund’s holdings.

Investors in the fund have also expressed concern with Gundlach himself. Aside from reportedly sending taunting emails to a former employer and current rival firm, he has openly criticized members of the media for supposedly misreporting a speech he gave. He has also been accused of focusing attention on his fund by stirring up debate.

“He can create controversy. If that’s what floats his boat, great,” said René Bruer, co-chief executive at Smith Bruer Advisors, who in 2015 pulled all of his clients’ assets out of the fund. “But for my clients and for me, I can’t take much of that.”

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