Topping Gross
The co-chief investment officer at Newport Beach, California-based Pacific Investment Management Co. earned an average of 7.6 percent during the same period in his much larger, $281 billion Pimco Total Return Fund.
Gundlach’s performance convinced Andreas Lehmann, chairman of Luxembourg-based Alma Capital Investment Funds, to hire him to manage a fund for European investors. “Ultimately, what matters are the returns over time, and on that count, Jeffrey stands out,” Lehmann says.
If Gundlach’s outlook for the possibility of higher inflation comes true, his bond funds could suffer like most fixed-income investments. Since he opened DoubleLine in December 2009, it had gathered about $50 billion in assets as of mid- November, and it was the fastest-growing mutual fund firm ever in its first year, according to Strategic Insight, a New York- based research firm.
Mortgage Holdings
Most of DoubleLine’s assets are in the Total Return Bond Fund, which has 78 percent of its holdings in residential mortgage-backed securities -- both those guaranteed by the U.S. government and those that are not and have discounted prices.
The mix should help the fund weather either inflation or deflation because the securities should move in opposite directions if interest rates go up or down. Because higher rates could mean the economy is improving and housing prices are recovering, there would be fewer defaults on the riskier nonguaranteed bonds, and prices would rise, says Philip Barach, DoubleLine’s co-founder and president.
And he says the fund’s duration, a measure of how much bond prices will change when yields rise or fall, is low, making it less sensitive to shifts in interest rates.
“Jeffrey and I are more risk averse than you might imagine,” Barach says.
Gundlach is so confident that phase three is coming that he’s planning to start an equities fund and a long-short hedge fund in early 2013 to offer investors additional protection from inflation. Gundlach, who says he buys assets only on the cheap, is also sitting on cash in anticipation of scooping up securities at fire-sale prices. Cash makes up 17 percent of his Total Return fund.