Top Rank for DoubleLine's Low Duration

10/31/2014 9:00 am EST

Focus: FUNDS

Todd Rosenbluth

Senior Director of ETF & Mutual Fund Research, CFRA Research

This low duration fund—a top-ranked short-term bond fund—earns a S&P Capital IQ high ranking for its performance, risk, and cost factors, reports Todd Rosenbluth, S&P Capital IQ Director of Mutual Fund Research in S&P Marketscope Advisor.

DoubleLine Low Duration (DBLSX) is led by firm President Philip Barach but Bonnie Baha (credit focused manager) and Luz Padilla (emerging markets focused manager) round out the management team.

DBLSX has generated a strong three-year total return of 2.6% through October 10, much higher than 1.9% gain for its short-investment-grade debt Lipper peers.

The fund rose 1.5% in 2013, outpacing its peers by 100 basis points and the broader taxable bond category by more than 180 basis points. Further supporting our view, the fund's record is impressive in that the standard deviation of 0.76 is 41% lower than its peers.

In a September interview with S&P Capital IQ, Barach said a risk-adjusted focus is precisely what he and his bond fund colleagues employ, aiming to generate real returns greater than inflation with less volatility.

As of August, according to DoubleLine data, 59% of the assets inside DoubleLine Low Duration had duration between 0-3 years, but 25% had negative duration, meaning the bonds would actually be inclined to rise as interest rates climbed higher.

This might be counterintuitive to investors, but, for example, Barach explained that non-agency mortgage-backed securities are credit sensitive and can benefit as the economy strengthens, which would be one of the drivers of rates moving higher.

DBLSX's 30-day SEC yield of 1.8% is nearly double that of its Lipper peer group, which we think reflects the fund's greater exposure (20% of assets) to below-investment-grade bonds.

In ranking more than 3,500 taxable bond mutual funds on a weekly basis, S&P Capital IQ incorporates relative performance metrics, cost analysis, as well as the fund's credit quality, duration, and yield.

Further supporting our five-star ranking, we view favorably the tenure of management, a modest 0.5% expense ratio (DBLSX costs 0.7%) and a below-average 53% turnover rate.

As investors prepare their portfolios for potential rate hikes in 2015, we think the now three-year old DoubleLine Low Duration Bond fund is worth a closer look.

We also note that DoubleLine Low Duration Bond Class N (DLSNX) is the more retail investor-friendly of the DoubleLine share classes, with just a $2,000 minimum initial investment and a similarly strong track record.

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