investing

Kiplinger 25 Update: Tepid Gains in a Hot Bond Rally

Jeffrey Gundlach says DoubleLine Total Return Bond has done well so far, but falling rates are causing slight bumps in the road.

The strategy behind DoubleLine Total Return Bond (symbol, DLTNX) fund is simple. The fund's managers, led by Jeffrey Gundlach, invest in a blend of government-agency mortgage-backed securities and non-agency mortgage-backed bonds. The two types of bonds balance each other in terms of risk: Government mortgage debt carries no default risk but a lot of interest rate risk (interest rates and bond prices tend to move in opposite directions); non-agency mortgage-backed bonds have little interest rate risk but higher default risk. Since it launched in April 2010, the fund has outpaced all but four of its peers—funds that focus on intermediate-term bonds—with lower volatility.

The past year has been business as usual for the fund, a member of the Kiplinger 25,with one small change. Gundlach and his comanager, Philip Barach, promoted analyst Andrew Hsu to comanager. Hsu has been a member of Gundlach's team for years. "Andrew knows the portfolio inside and out," says Gundlach.

But the bond market has been a bit unusual. High-quality corporate bonds, a sector Total Return Bond doesn't own, gained 13.7% through the first eight months of 2019, nearly as much as the broad U.S. stock market. "That's interesting and also weird," says Gundlach. Corporate debt makes up 25% of both the Bloomberg Barclays U.S. Aggregate Bond index and the typical intermediate-term bond fund. As a result, Total Return Bond's respectable 7.5% gain over the past 12 months lags the 10.1% gain in the Agg index and trails 88% of its peers.

Falling interest rates in 2019 posed another problem for Total Return Bond. By early September, the 10-year Treasury yield had dropped a whopping 1.14 percentage points. Falling rates have pushed bond prices higher—good news for bond investors, especially holders of government debt. But Gundlach likes to keep Total Return Bond's duration, a measure of interest-rate sen­sitivity, below that of the Agg index. In late summer, the fund had a 3.5-year duration; the Agg, by contrast, had a 5.3-year duration. "Given the Total Return construct, I think we've performed quite well," Gundlach says.

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

T. Rowe Price Financial Services Banks on a Turnaround
Stock Market Today

T. Rowe Price Financial Services Banks on a Turnaround

This fund is a good way to bet on an economic rebound.
February 24, 2021
DSTL: A Value Fund With a Twist
Becoming an Investor

DSTL: A Value Fund With a Twist

The fund’s 51.3% return since its inception in 2018 has more than tripled that of traditional value funds.
February 24, 2021
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021
Earth-First Funds Are Soaring
Markets

Earth-First Funds Are Soaring

Funds with sustainability in mind are super popular these days; these six are ready to deliver returns.
February 24, 2021