But Morningstar officials vigorously defend their neutral rating. They say their reading is a qualitative assessment that focuses on five factors: a fund’s people, its parent company, its performance, process and price. “Our analysts not only look at risk-adjusted returns, but also conduct manager interviews, research filings, and observe multiple data points and metrics,” says Youssef. She adds that DoubleLine officials’ refusal to speak to Morningstar hurts its efforts.

Other analysts take sharp issue with Morningstar. Jeremy DeGroot, CIO of Litman Gregory Asset Management, conducted extensive research on Gundlach before naming him as sub-advisor of a sleeve for the firm’s Masters Alternative Strategies fund.

“We don’t share Morningstar’s view. We disagree,” he says. DeGroot acknowledges that when one observes Gundlach in public and listens to his pronouncements on hot stocks ranging from Apple and Chipotle to the Spanish stock market index, they could easily suspect him of being a risk-loving high roller.

But the reality is he possesses “a very long record of assessing, managing and offsetting risk,” DeGroot says. “He has an ability to control risk and synthesize a complex, multi-variable group of markets.”

The sleeve of the Masters Alternative fund that Gundlach manages represents his “best ideas” and DeGroot claims its holdings might look more like those of his private hedge fund than the securities in DoubleLine funds. “This strategy is higher risk [than DoubleLine’s other mutual funds] but he isn’t swinging for the fences,” DeGroot argues. “He will not own a bond if he thinks there is a chance it will default.”

Jeff Tjornehoj, a senior analyst at Lipper, acknowledges that the MBS market possesses risks. After all, it was the epicenter of the 2008 financial crisis, which triggered the worst recession in 80 years. But Tjornehoj believes DoubleLine’s risk controls are superior to most rivals. “We looked at the last period when volatility spiked in the bond market [and] the volatility in his fund spiked much less that its average peers,” he said.

Outside of DoubleLine, others have accused Morningstar of selective bias. Bond fund manager and Internet columnist David Schawel noted that top hedge-fund managers like Seth Klarman, Kyle Bass and Daniel Loeb were also heavily invested in non-agency MBS at the same time as Gundlach. In a 2011 column on Economic Musings, he challenged Morningstar’s analysis and questioned its objectivity. “The beauty of the DoubleLine managed funds is that the team isn’t trying to guess interest rates,” Schawel wrote. “They have clearly devised a strategy that takes advantage of extreme dislocation in the RMBS market and paired them against longer duration agency securities that perform well, stay flat or move lower.”

In May 2013, John Coumarianos, an RIA, independent blogger and former Morningstar analyst, doubted in a blog if “Morningstar analysts are equipped to judge how Gundlach and his team evaluate complex mortgage securities. The bond market is ‘The Wild West’ of the investment world, as Michael Lewis has written, and it’s not easy for even very bright people to make sense of it (especially the mortgage market).”

What Coumarianos finds “troublesome is that some of the finest equity managers Morningstar covers—and gives strong qualitative assessments to—dabble in distressed debt when they think prices warrant it.” Topflight equity managers like Steve Romick at FPA Crescent and teams at Mutual Series and Third Avenue Value have won “kudos [from Morningstar] for going the extra mile in uncovering underpriced oddball securities,” he wrote.

How does Gundlach himself evaluate the riskiness of his funds? Asked during last December’s Webcast, why not buy an index fund, Gundlach thanked the questioner for throwing him “a softball” and noted that the strategy followed by the Total Return Fund for two decades since his TCW days outperformed its benchmark 70% of the time. Significantly, he said it performed particularly well in bear markets. He quickly added that the company Core Fixed-Income was riskier and should provide higher returns over a full market cycle, though that has yet to happen.

Since DoubleLine opened its doors, the fund manager has entered the equity markets and formed numerous joint ventures managing sleeves of various multi-sector funds with Litman Gregory, Aston, RiverNorth and most recently Nobel laureate Robert Shiller. If DoubleLine’s flagship’s fund record and style consistency going back to TCW days are as continuous as they appear, then analysts looking for risk in its funds might find more fertile territory in new ventures where its track record is scant.

Since it was started in 1984, Morningstar has earned a reputation for fairness, objectivity and integrity that would be the envy of other financial rating firms, most notably the bond raters. When its star rating system was challenged in the early 1990s, it hired leading academics, including Nobel laureate William Sharpe, to conduct a review. If the feud turns out to be simply another case of a few analysts taking a strong position and refusing to waver, it would appear very unusual for Morningstar but normal for the rest of the financial services business.

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