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DoubleLine Fund Doubles The Returns Of Rivals By Uncovering A Curious Strategy: (DSENX)
Another guy writing stuff that's misleading, probably because he doesn't understand it. Do an instant X-ray on the 4 sector etfs in the fund and you'll find out it is NOT a value fund. I haven't tried to test that over its entire history but I'd be surprised if it's ever been a value fund based on M*'s definitions and how other funds are classified. When I've done that in the past it has always ended up as a growth fund or a blend fund close to the border with growth. People naturally think investing in the 4 lowest CAPE sectors (excluding whichever one of the "cheapest" 5 has the worst momentum) is a value approach and maybe it is, but that's not what this fund is doing. It's investing in 4 of the cheapest 5 based on the CAPE ratio relative to it's own history. So if technology has traded at an average CAPE ratio of 400 over the last 10 or 20 years (sorry, can't remember the precise details) and its only trading at a CAPE ratio of 300 today while Energy is trading at 25 today but has historically traded at 20, then technology is the "cheaper" sector in ranking terms for determining the funds investments.
The approach has worked very well and may continue to work but it has not led to a "value" portfolio based on the definitions M* uses to categorize other funds, it's not necessarily invested in sectors with the lowest traditional CAPE value and it's the traditional CAPE value that has proven more predictive of future (long-term) performance than most other things.
Outperforming value funds when it has "growth" investments is meaningless even if people keep writing about the fund that way. Buyer beware!! For transparency sake I do own the fund and I like it. I just don't appreciate the way it tends to be written about because I think it's likely to make people believe they're getting something that they really aren't.
@LLJB - nice description. I agree that the writer probably doesn't understand the fund or the index. I suspect that cause of the mischaracterization can be laid at M*'s feet. They're the ones classifying this fund (and the CAPE ETN) as LCV.
There's another part of the description that's wrong, though it seems almost everyone gets that wrong. The CAPE index does not pick among the 10 S&P sectors. For one thing, the index added real estate, which is not an S&P sector, but (per prospectus) comes the Dow Jones U.S. Real Estate Index.
There are 10 S&P sectors, so that would seem to add up to a pool of 11 sectors. But the index combines two S&P sectors (technology and telecom) into one.
Interesting. If you graph CAPE $10k growth over 4/3/2/1y/ytd you could argue CAPE tracks JKF (meaning its wiggles) rather more closely than JKE --- except for the last year, when CAPE has moved more like JKE. Fwiw.
Couldn't resist the visual look to satisfy my curious brain. I also have been watching as to or if the "value" area is going to receive a more aggressive bump up.....and there is a bit here now.
Comments
The approach has worked very well and may continue to work but it has not led to a "value" portfolio based on the definitions M* uses to categorize other funds, it's not necessarily invested in sectors with the lowest traditional CAPE value and it's the traditional CAPE value that has proven more predictive of future (long-term) performance than most other things.
Outperforming value funds when it has "growth" investments is meaningless even if people keep writing about the fund that way. Buyer beware!! For transparency sake I do own the fund and I like it. I just don't appreciate the way it tends to be written about because I think it's likely to make people believe they're getting something that they really aren't.
There's another part of the description that's wrong, though it seems almost everyone gets that wrong. The CAPE index does not pick among the 10 S&P sectors. For one thing, the index added real estate, which is not an S&P sector, but (per prospectus) comes the Dow Jones U.S. Real Estate Index.
There are 10 S&P sectors, so that would seem to add up to a pool of 11 sectors. But the index combines two S&P sectors (technology and telecom) into one.
Here's a table of those 10 "real" S&P sectors along with dated info on their CAPE ratios.
http://siblisresearch.com/data/cape-ratios-by-sector/
Nov. 2013 to date:
http://stockcharts.com/freecharts/perf.php?DSEEX,CAPE,JKF,JKE&n=1023&O=011000
Last 6 months to date:
http://stockcharts.com/freecharts/perf.php?DSEEX,CAPE,JKF,JKE&p=3&O=011000