In a July 18 report on DoubleLine’s flagship fund, entitled “Swim at your own risk,” Morningstar senior analyst Sarah Bush cautioned investors about Gundlach’s use of volatile mortgage- backed derivatives such as inverse floaters, which are debt instruments whose coupon payments decrease when short-term interest rates increase.
DoubleLine co-founder Barach dismisses Bush’s concern, saying the securities make up less than 3 percent of the fund’s investments and have performed well over the past 20 years while also providing cash flow.
“Morningstar has been dead wrong on DoubleLine since December 2009,” Gundlach says, referring to the month he started the firm. “They don’t understand what I’m doing.”
Bush says she met with Gundlach in April. She says DoubleLine later declined to fill out a detailed questionnaire that would have helped explain the Total Return Bond Fund’s performance.
TCW Cheerleader
“We got a call saying they had cooperated enough,” says Bush, who stands by her analysis.
Gundlach also accuses Morningstar senior analyst Eric Jacobson of being a cheerleader for TCW, Gundlach’s former employer.
“What’s so reprehensible here is, Jeffrey called and said, ‘If I were you, I would fire Eric,’” says Don Phillips, Morningstar’s president of investment research and Jacobson’s boss. “Eric was one of the most early and ardent supporters of Gundlach.”
Gundlach’s quarrel with TCW began when the firm appointed then-Vice Chairman Marc Stern as chief executive officer over the objections of Gundlach and four other executives. They wanted to form a management committee to lead the firm. A TCW spokesman declined to comment for this story. Both the TCW and Gundlach lawsuits were settled in a confidential agreement at the end of 2011.
Art Passion