More Gundlach

TSP_Transfer

More Gundlach
DoubleLine Capital founder said managers with wide latitude are taking too much risk

By Trevor Hunnicutt | May 20, 2015 - 1:25 pm EST InvestmentNews

EXPENSIVE SHORT
"At the heart of Mr. Gundlach's concerns are the use by managers of a potentially expensive short on Treasuries, the cost of which weighs on returns.

The trade is used to achieve negative duration and benefit from rising rates, and is often coupled with low-credit junk bonds of the same maturity as the shorted Treasuries. (Duration measures the potential sensitivity of a bond's price to rate increases.)

Mr. Gundlach described that trade as an “unacceptably high commitment to credit risk” that's “long credit risk and short safety.”

“Investors are probably encouraged to believe that the funds will always go up, and I think that's poor communication on the part of the sponsors,” said Mr. Gundlach."
http://www.investmentnews.com/article/20150520/FREE/150529994?template=printart

JohnChisum

Is he upset because the shorting of Treasuries is crimping his style?

JohnChisum

Two days in a row for this subject.

heezsafe

The trade is used to achieve negative duration and benefit from rising rates, and is often coupled with low-credit junk bonds of the same maturity as the shorted Treasuries.

@TSP_Transfer Thanks for the post. I would have missed it.
1. "same maturity as..." ? I wonder if JG was misquoted; surely he would have meant duration, right?
2. obviously, mentioning specific names would have been impolite, but do you know to what funds he could be referring? Yes, I'm in one of the unconstrained bond funds that is shorting (SUBYX) and the expense of the short is ex-ing out the monthly dvd (most but not all of the time). But they are not coupling it with junk--- most of the rest of the portfolio is diversified in short-duration, safer stuff. Anyone know of an unconstrained that is loading the rest of the boat with junk?

Ted

@TSP_Transfer: Hello !
Regards,
Ted
http://www.mutualfundobserver.com/discuss/discussion/21225/jeffrey-gundlach-warns-advisers-on-unconstrained-bond-funds#latest

JohnChisum

@heezsafe, my unconstrained fund ASDVX, is also shorting the ten year but the proportion of junk assets hasn't changed. Maybe Gundlach is speaking of a certain fund family?

@Ted, actually this thread was up first.

Ted

@TSP_Transfer: I stand corrected !
Regards,
Ted

Old_Joe

@Ted- I'd bet that you weren't even standing when you wrote that.

heezsafe

Tallying up the cost of short interest expenses. Depending on your sources, it may not always be tallied. In a MF, the costs will depend on just what is being, or has been, shorted.
http://news.morningstar.com/articlenet/article.aspx?id=698476