Here's the buy history:
After years of bashing "junk bond" funds on Moneytalk, Brinker added Vanguard High-Yield Fund (VWEHX) to the Marketimer fixed-income portfolio on April 11, 2003. In order to do that, he reduced holdings in Vanguard Ginnie Mae Fund from 50% to 35% (Ginnie Mae holdings are currently at 25%).Here's the reason he sold:
Moneytalk, November 11, 2012....Caller Bob from New York asked: "From your newsletter, you eliminated the Vanguard High Yield. Was that a call on the fund or on high yield?Here's the outcome -- so far:
Brinker replied: "What happened with that fund when we took it out of the portfolio was this, we saw the yield on the fund drop below 5%. That's very unusual for that fund historically....As a result of that decline in the yield, the net-asset-value of that fund rose so much that I regarded it as an opportunity to take profits. I'm glad you asked that Bob. That decision had nothing to do with the fact that that fund had closed to new investors....It was not related to that. In other words, what I'm saying is, if that fund had remained open to new investors, the exact same decision would have been made."
On the day that Brinker advised selling all Vanguard High-Yield Fund (October 9, 2012), it closed at $6.05. It is now selling at $6.13 -- about 1.5% higher. It pays a higher monthly dividend and has a much lower expense ratio than Double Line Total Return Bond Fund (DLTNX). At the same time, Double Line has gone from $11.39 down to $11.13 -- about 2%.
So far, this is not looking like a good move -- especially for those who paid capital gains tax to sell their Vanguard Fund.
29 comments:
Apparently Bob tried to safeguard against the possible rise of interest rates by moving bond funds toward ones having low durations. For example, last time I checked 12/20/2012, Vanguard High Yield has duration 4.40% and SEC yield 4.67%. DoubleLine has duration 2.10% and SEC yield 4.51%. Both are high yield (junk), but shorter duration make DoubleLine attractive. (btw, DLTNX is closed today at 11.33, not 11.13.) Overall, looks like his 4 income funds have average duration 3.2% and yield 3.15% at the end of 2012.
tt945
The DoubleLine fund -DLTNX- is NOT a junk bond fund which makes a big difference.
Vanguard has fewer securities at 392 versus DoulbLine holdings of 1,474 securities.
Average coupon for Vanguard is 6.6% versus 4.6 for DoubleLine.
They are NOT comparable funds at all.
Junkie
https://personal.vanguard.com/us/funds/vanguard/compare?navigatingFrom=1
Well, Junkie,
Noone here said they were "comparable funds." MOF, I have consistently said that they are not comparable because Double Line is MUCH more risky than high yield funds.
Gundlach take a lot of leverage risks that Vanguard doesn't -- and he charges for his hands on management, which up to now is not performing as well as Vanguard High Yield Fund.
"Gundlach take a lot of leverage risks that Vanguard doesn't -- and he charges for his hands on management, which up to now is not performing as well as Vanguard High Yield Fund.
The Vanguard Junk bond fund is FAR risker than the DoubleLine fund. DLTNX has about 80% of it's portfolio in Governement bonds while Vanguard has 80% Bb And B Rated.
Of course Gunlach charges for hands on managment...it is a managed fund after all but so is Vanguard a managed fund.
And I have no idea what kind of leverage you are talking about. Are you saying the DoubleLine fund is leveraged?
A high yield jund bond SHOULD be expected to provide higher returns than an intermediate bond fund because it is RISKIER.
Junkie
Yes, it looks like Bob Brinker dropped Vanguard High Yield too soon. It is +1.53% YTD, the best performing Vanguard bond fund. GNMA so far is -0.30%.
As for Vanguard High Yield vs. Doubleline, IMO they are both risky. Current yield is 4.43% for Vanguard vs.3.93% Doubleline. I think any fund yielding 3%+ in this environment must take much risk to do it.
I would like to point out to any fan of Doubleline that Jeffrey Gundlach is planning to close this fund in the near future. See here:
http://money.usnews.com/money/personal-finance/mutual-funds/articles/2013/01/29/doubleline-total-return-fund-will-likely-close-to-new-investors
Thanks for the comments, Jim!
I agree, there is risk in both. I am heavily invested in high-yield, but sure won't hesitate to sell at the first sign of economic trouble.
My guess is that if interest rates start rising, Double Line will be hit much harder than high-yield funds, in spite of the duration of either.
I know that doesn't make sense and it's worth what you pay me for it, but it's my opinion. :)
"Double Line will be hit much harder than high-yield funds, in spite of the duration of either...I know that doesn't make sense..."
And Jim says any fund yielding over 3% is just plain risky.
So DoubLine with a lower duration, higher credit quality and no levarge is just "somehow" risker than the Vanguard Junk bond fund?
I don't get it but then that's what makes a market I guess.
BTW, Grundlach is planning to launch a closed end fund which WILL utitlize leverage and invest in riskier assets unlike his present funds.
..."The object of the Income Solutions fund is to seek high current income coupled with capital appreciation. Unlike most DoubleLine funds which do not use leverage, the filing claims the new product can employ up to 33.3% leverage. Officials at DoubleLine were not available to comment..."
Junkie
Junkie,
I think the point that we are missing is the definition of the word "risky."
Perhaps you would share your definition of the word. To me it means "the degree/amount of the possible risk of loss of principal and/or dividends."
Risk is relative I guess. Ranging from zero to extreme.
But what we're talking about here is the relative riskiness of two funds...Vangard Junk Bond fund v. DoubleLine Total Return.
IMO, and by all avaiable metrics, the junk fund is the riskier of the two. An opinion not shared by all.
Junkie
Well Junkie,
There are many who followed Bob Brinker's recommendation to buy (and hold) VWEHX, who would agree with you when it got WHACKED in 2008-09.
I had several subscribers write to me and ask for help. Brinker would not respond to their pleas for guidance and he damn sure never mentioned owning it during those years.
I always advised them to hold on, it would come back. I also told them that I (a complete non-professional) had already sold all of my high-yield funds BEFORE the drop.
I bought them back as the market started swinging up and have made capital gains (some of which I took last year) and dividends every month.
DLTNX is in the "US Mortgage" category on the WSJ fund website. On Sept 30, 2012 83% of its holdings were in GNMAs.
VWEHX held 94% Corporate notes and bonds on that same date and the WSJ website puts it in the "High Current Yield category.
-- Frankj
Thanks FrankJ,
I'm glad we are discussing this. There may be some that are conflicted about how risky high-yield bond funds are...
I think it's clear that the biggest risk is economic, rather than interest rates.
But a lot of that risk is mitigated by buying funds rather than individual bonds.
http://richliebermanreport.blogspot.com/2013/03/late-kgo-radio-posts-business-reporter.html
So who will be the next fill-in for Mr B's time away? My vote is still with our humble host.
This is Honeytalk.
Oh thank you, Birdbrain.
Here's your link live:
Late KGO Radio Posts; Business Reporter Lynn Jimezez leaving to tend to ailing father
I suppose that means she will no longer be Bob Brinker's "official" fill-in host.
I am hereby offering my services, Bob! I will fill in for you for free.
And I guarantee that I know all of your rules for being one's own investment advisor, all of your current market views, and how to watch out for shark attacks. You taught me well. LOL!!!!!!
I found this December 4th article by Rich Lieberman about Lynn Jimenez.
This explains why Neale Godfrey has been filling in for Lynn for several months now.
I think Lynn has done an amazing thing and I want to give her kudos for her love and generosity to her father -- giving him a kidney:
"Many of you have inquired about Lynn Jimenez' extended absence from KGO.
Jimenez, the business reporter at the station since 1990, has taken a leave to tend to her ailing father. In fact, Jimenez donated one of her kidneys to her father and wrote extensively about it and what it felt like.
This article was posted last December:
Jimenez has been off the air since Nov. 18.
Our thoughts and prayers go out to Jimenez and her family."
Jimenez takes leave to tend to father
A little more investigating adds to the mystery. It was in 2008 that Jimenez gave her kidney to her father. So does this mean that he is deteriorating again? I certainly pray not.
UCSFHealth/patient/Frank Jimenez
Junkie said:
The Vanguard Junk bond fund is FAR risker than the DoubleLine fund. DLTNX has about 80% of it's portfolio in Government bonds while Vanguard has 80% Bb And B Rated.
But did you see the rating of the junk bonds in Doubleline? Most of them are LOWER than B. That makes those bonds extremely risky. That's how Gundlach gets the high yield he does while still holding Government Bonds. He needs those AAA bonds to offset the huge default risk he's taking with his speculative junk bonds.
Bob Brinker's Moneytalk is no longer in the Talker's Heavy Hundred talk show hosts.
Rush is at the top and Sean is second.
Brinker started Moneytalk about the same time that Rush started.
Talker's Heavy Hundred
Jim said accurately:
"But did you see the rating of the junk bonds in Doubleline? Most of them are LOWER than B. That makes those bonds extremely risky. That's how Gundlach gets the high yield he does while still holding Government Bonds. He needs those AAA bonds to offset the huge default risk he's taking with his speculative junk bonds."
You are so right. Take a look at this bit of small print:
"It intends to invest more than 50% of its net assets in mortgage-backed securities of any maturity or type. The fund may invest in bonds of any credit quality. It may invest up to 33 1/3% of its net assets in junk bonds, bank loans and assignments and credit default swaps of companies in the high yield universe.
Bob Brinker says he the world's best bond fund manager. Well, I say, with that plan he darn well better be!!!
Well, is this a start, and could it spread to the US if there is any move toward cutting freebees which might cause riots?
Cyprus Bank Move Postponed
"It intends to invest more than 50% of its net assets in mortgage-backed securities of any maturity or type. The fund may invest in bonds of any credit quality. It may invest up to 33 1/3% of its net assets in junk bonds, bank loans and assignments and credit default swaps of companies in the high yield universe."
All bond fund prospectuses specify the outer LIMITS of what they are allowed to do. It is not necessarily what they INTEND to do.
Did you also notice that DoubleLine is NOT permitted to use leverage? That's why Grundlach is starting a closed end ETF that will use leverage.
Jeffan
Well Jeffan,
You seem to be very much pro-Gundlach an doubleLine. Perhaps you are a Bob Brinker Fan Club member, which is okay with me.
We just want to air it out so that people are not just blindly thinking they don't have any risk involved in buying the fund.
"...people are not just blindly thinking they don't have any risk involved in buying the fund."
If people blindly think they don't have any risk in buying "anything" then they get what they deserve.
I am a fan of Jeff Grundlach and I think he has overtaken Bill Gross who has underperformed for the past 2 years.
Grundlach can provide equal or better results for less cost.
I do; however, think you are doing a disservice with your statement that Vanguard Junk is less risky than DoubleLine Total Return. The numbers just don't support it.
Jeffan
Jeffan,
It is my opinion that a good junk bond fund is less risky than Double Line, but let me make myself perfectly clear:
That is ONLY my opinion, nothing more. I don't sell my opinions and I don't sell a newsletter filled with my opinions.
Brinker disagrees with me, and I have ALSO made that clear. He sells his opinions. He's been wrong before when I've been right on the same subject.
Also, I have allowed all comments to the contrary to be posted, so readers can draw their own conclusions.
I think that Jim offered the best comments on the subject, so far.
Jeffan said:
"I do; however, think you are doing a disservice with your statement that Vanguard Junk is less risky than DoubleLine Total Return. The numbers just don't support it.
I cannot say which fund is more risky, but here's some numbers. Yahoo Finance shows as of Jan. 30 2013 Doubleline had 23% of the fund in junk bonds rated below B. However Vanguard High Yield (total junk) had only 12% of its fund in below B bonds. Any bonds below B are considered speculative and run significant risk of default.
If we talk in terms of just junk bonds, it appears Mr. Gundlach has an appetite for riskier junk bonds than Vanguard. I stand by my original statement that both funds carry above average risk. I will let others decide which fund is riskier.
"If we talk in terms of just junk bonds, it appears Mr. Gundlach has an appetite for riskier junk bonds than Vanguard. I stand by my original statement that both funds carry above average risk. I will let others decide which fund is riskier."
So Gundlach has a few more lower rated junk bonds than Vanguard. What's the weighted credit rating for the entire portfolio for both funds Jim?
I don't have time to look it up right now but you will find that obviously the junk bond total portfolio is much risker than DoubleLine.
Jeffan
Jeffan wrote:
"So Gundlach has a few more lower rated junk bonds than Vanguard. What's the weighted credit rating for the entire portfolio for both funds Jim?
I don't have time to look it up right now but you will find that obviously the junk bond total portfolio is much risker than DoubleLine."
Here's your answer Jeffan. The weighted credit rating for Doubleline is BB (junk status). The average credit rating for Vanguard is B. So Doubleline is one grade higher on average, but the ratings suggest we are basically comparing one junk fund to another. I know you insist Doubleline is not a junk fund, but the ratings suggest otherwise.
I suppose one could say that Vanguard is SLIGHTLY riskier, but not much riskier as you suggest.
Thanks so much for doing that research for us, Jim.
I guess one could say that if you sold Vanguard High Yield and bought Gundlachs' Double Line, you got almost the same risk and the privilege of paying three times as much for it.
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