A "Bond God" and an Income Solution

09/15/2020 5:00 am EST

Focus: BONDS

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

We had a new subscriber point out that the current price on DoubleLine Income Solutions Fund (DSL) is below our entry price. Did we really lose money with the “bond god” Jeffrey Gundlach and his firm over a multi-year period? asks Brett Owens, editor of Contrarian Income Report.

Big yields are the big thing that brought us all together! Let’s not overlook them. Thus far, we’ve collected $8.04 in dividends on a fund we paid $16.99 for. Now that’s my kind of investment — one that steadily pays for itself in actual cash flow.

It’s been a rough year for DoubleLine Income Solutions Fund, but the fund appears to be back on track. To be fair, I heard Gundlach admit in prior years that DSL was not built to thrive in a credit crisis.

For dividends with less drama, he recommends the firm’s sister closed-end fund (CEF), DoubleLine Opportunistic Credit (DBL). As I write, DBL yields 6.8% and trades at its net asset value (NAV).

For years DBL traded at a premium and underperformed DSL significantly for this lone reason. It is finally trading at a reasonable price, but alas, the fund has less than $300 million in assets and is too small to be a formal recommendation in our portfolio.)

Back to DSL, the sharpest, shortest credit crisis in history really ended in late March when Fed Chair Jay Powell started backstopping the financial markets with his printing press.

Since then our man Jay has gotten quite creative, even using some of his newly printed money to purchase corporate bond ETFs. While he has not purchased DSL or any of the fund’s holdings, his actions have buoyed the nearby bond landscape.

Powell said he plans to basically never raise rates ever again unless inflation really ramps up. In a zero-interest rate world, how good does DSL’s 11.1% yield look?

The fund trades at a modest 2% discount to its NAV today. While not a huge bargain, it’s enough to essentially “comp” the management fee. Buying DSL is like buying a low-cost ETF, except better, because it has the management team most connected with the best deals in the entire fixed income world.

Also, we’ll enjoy price appreciation while the value of DSL’s holdings continues to bounce back (and result in a higher NAV). Central bankers around the world have “tipped their hand” by showing that they prefer money printing to a risk of any potential replay of what we saw in March.

DSL is an ideal holding for this type of climate. I’m raising our buy price to reflect this. It’s a good purchase anytime we see it at a discount. Action to Take: Buy DoubleLine Income Solutions up to $16.30. 

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