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Jackson National Gives Pimco Total Return the Boot, Welcomes DoubleLine

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Jackson National Life is switching fund managers for its core $3.5 billion fixed income offering.

In a regulatory filing, the variable annuity provider said Pimco’s Total Return bond strategy is out and DoubleLine Capital’s Core Fixed Income Fund is in, according to a Reuters report.

Jackson’s medium-term fixed-income investment option is to be renamed JNL/DoubleLine Core Fixed Income and is set to be a subaccount option for clients in variable annuities.

DoubleLine CEO and Chief Investment Officer Jeffrey Gundlach is the fund’s portfolio manager, along with Deputy CIO Jeffrey Sherman. The Pimco fund was led by Bill Gross until he left Pimco in September 2014 to join Janus Capital, where he runs the Janus Henderson Global Unconstrained Bond Fund.

Jackson National will still offer clients the JNL/Pimco Income Fund and JNL/Pimco Real Return Fund. It rolled out the JNL/Pimco Total Return Bond as an option in 1998, the news report said. (Calls to the annuity firm were not returned as of press time.)

Morningstar says that the Pimco Total Return Fund (PTTRX) is “the most heavily redeemed fund for the third year running.” (Pimco is owned by insurer Allianz.)

As of April 30, the fund had lost $15 billion over 12 months; that represents about 17% of its assets, leaving it with some $73.6 billion of assets, according to a June 1 report led by Karen Wallace, a senior editor with the Chicago-based research firm.

“The late-2014 departure of Bill Gross certainly started the stampede; in 2014 the fund lost an estimated $93 billion in assets; then in 2015 and 2016 it lost another $53 billion and $14 billion, respectively. Middling performance over the medium term hasn’t convinced investors to stick around, either,” she explained.

DoubleLine Update

Holdings in the DoubleLine Core Fixed Income Fund (DBLFX, DLFNX) have an average duration of 5.13 years.

The fund, which has a five-star rating from Morningstar, has a 3.05% year-to-date return as of May 31. Its one year performance is 3.74%, while its average annualized performance since June 2010 is 5.73%.

As of March 31, DoubleLine Capital managed $12.1 billion in core fixed-income strategies, including $8.1 billion in its Core Fixed Income fund; the holdings in this fund have since grown to $8.8 billion in total net assets, according to the firm. Across its different strategies, client assets totalled $105 billion as of March 31.

Speaking last week at the FPA NorCal Conference in San Francisco, Gundlach told a crowd of about 700 advisors and other guests, “I would never use a robo-advisor,” saying “that could be the cause of the next crash.”

He also said that passive investing has “distorted” the markets’ behavior and has played a role in the high valuations of the S&P 500 index and other U.S.-based indexes. “I would think about this and how to benefit from the pendulum swing” when passive funds fall out of favor, he said.

“Passive bonds are not beating the market,” the fixed-income specialist added.

In response to a question about the Federal Reserve’s next interest rate hikes and the “unwinding” (or reduction) of about $4.5 trillion on its balance sheet, Gundlach says it’s likely the Fed “will raise rates one more time this year.”

“They could stop [raising rates] in June and if so, I don’t see the unwind [coming]. All the talk about the unwind is tortured and over-complicated,” he explained. “It is just a spreadsheet.”

When it comes to investing in equities, Gundlach points out that the U.S. “makes up 53% of market cap[italization] but only 24% of [global] GDP. This doesn’t seem right.”

His take? “Try investing overseas — it’s a good time,” he said.

“About 30 to 40% of outperformance is tied to [rising] market cap rather than GDP growth, because largely U.S. equities have been propped up for years by passive management” and passive flows, Gundlach said.

He points out that the 115% upside in the S&P 500 is getting close to its 120% rise before the tech bubble burst: “Maybe there’s more S&P upside, but … it looks high.”

— Check out Gundlach: Get Ready for Higher Yields, Summer Selloff on ThinkAdvisor.