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Morningstar Gives Gundlach’s Flagship DoubleLine Fund a ‘Neutral’ Rating

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There is no love lost in the relationship between fund shop DoubleLine Capital and fund research firm Morningstar.

And Monday’s move by Morningstar to give the DoubleLine Total Return Bond Fund (DBLTX) a “neutral” rating probably isn’t going to help.

According to Morningstar analysts Jeffrey Ptak, CFA, and Sarah Bush, the fund is led by “a talented manager, but we still have questions about the fund’s process and firm stewardship.”

“We assigned a neutral rating, because we have a mixed view of the fund. We respect the skill and experience of its manager, Jeffrey Gundlach, who has amassed an impressive record here and at previous charge TCW Total Return Bond (TGLMX). We also think the fund is priced competitively — fees on its institutional share class are below the category norm,” the analysts explained in an online report.

“However, we still have questions about the prudence and repeatability of the fund’s process and the extent to which its advisor, DoubleLine Capital Management, is demonstrating its commitment to shareholder interests,” they stated.

Since 2014, Morningstar – which gives the fund five stars – had assigned DLBTX a not ratable designation “after DoubleLine denied repeated requests for access to the firm’s personnel and information on its strategy,” it says. (Prior to that time, the fund had a neutral rating.)

DoubleLine says its Total Return Bond Fund had a net inflow of $363.6 million in June and year-to-date net inflows of $7.56 billion as of June 30. It calculates net flows by looking at fund share purchases and redemptions, and it does not count reinvestments of capital gains and/or dividends as inflows.

The popular fund has about $61 billion in assets, and the Morningstar analysts say it relies on “a fairly sophisticated mortgage strategy.”

Plus, they argue, it is “important to assess how management is assembling the portfolio and balancing the risks therein. For instance, Gundlach has historically talked about offsetting the risk in the fund’s high-quality and rate-sensitive agency mortgage portfolio with its more credit-sensitive non-agency residential mortgage-backed securities portfolio. As the non-agency RMBS market has shrunk and prices have recovered, how has portfolio construction evolved?”

Furthermore, with Gundlach playing a key role in the fund’s success and asset growth, Morningstar is concerned with succession planning and how the fund firm will manage capacity. “We have not been able to satisfactorily answer these questions using publicly available sources of information. DoubleLine has repeatedly declined our requests for information,” the analysts wrote.

DoubleLine did not respond to requests for a comment on the fund research group’s neutral rating as of press time.

What prompted Morningstar to give the Total Return Fund a rating?

The analysts say they “think it makes more sense to assign a rating to the fund that reflects what we know rather than, in effect, withhold a rating absent complete information. Leveraging the analysis we have conducted and considering the unanswered questions that remain about the fund’s process and DoubleLine’s stewardship, we do not have enough conviction in the fund to recommend it. We feel that the neutral rating we have assigned better conveys that view than not ratable, hence the change.”

— Check out Why Gundlach Predicts a Trump Victory on ThinkAdvisor.


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