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Eric Jacobson joined Morningstar in 1995 as a closed-end fund analyst and is now a senior principal for fixed-income strategies on Morningstar’s Manager Research team. Mr. Jacobson discusses changes in the fixed income market over his career on The Long View podcast. It's an interesting and informative conversation.
Those familiar with history may remember that after a leak/tip to him about 2009 about Jeffrey Gundlach firing from TCW, he forced a REVOTE of 2009 Bond Manager of the Year and the result was changed from initial GUNDLACH to FUSS.
Jacobson then covered the new DoubleLine funds and rated some as unratable for years. I see that DLTNX / DBLTX (AUM $31 billion), for example, now shows Brian MORIARTY as the analyst. M* Analyst Archives don't go beyond 12/2022 and don't even show the analyst names. But the history lives in the Internet.
DoubleLine (AUM $50.57 billion) is what it is today due to Gundlach's determination and Howard MARK's initial funding and support for DoubleLine (of course, he got paid handsomely for his equity stake).
Great interview—excellent explanation of why bonds are different and how skilled managers can take advantage of inefficiencies in the bond market.
If your goal is to earn more with lower volatility, which is where I am since retirement, then a few principles stand out:
Consider funds from small to medium-sized shops; they often have more flexibility and can uncover opportunities larger firms can’t.
Newer funds can sometimes perform even better because they’re more nimble.
Don’t obsess over expense ratios; what ultimately matters is performance after fees.
The bond market is unique; certain segments can outperform for only a few months (sometimes longer), so active trading and tactical skill really matter.
Timing is also critical, especially avoiding major drawdowns like in 2020, 2022, and 2024.
I listened to most of the interview, but I didn’t hear much about where to invest now, which is ultimately the guidance most of us are looking for.
CEFs? I only use them when I’m completely out of the market due to very high risk, like in 2022, when they can drop sharply within days. In those situations I trade them for hours. Other than that, I don't touch them.
Thanks for the additional info regarding Jeffrey Gundlach. Mr. Jacobson mentioned that several bond managers attempted to get him fired over the years. I imagine Gundlach was one of them.
[snip] If your goal is to earn more with lower volatility, which is where I am since retirement, then a few principles stand out:
Consider funds from small to medium-sized shops; they often have more flexibility and can uncover opportunities larger firms can’t.
Newer funds can sometimes perform even better because they’re more nimble.
Don’t obsess over expense ratios; what ultimately matters is performance after fees.
The bond market is unique; certain segments can outperform for only a few months (sometimes longer), so active trading and tactical skill really matter.
Timing is also critical, especially avoiding major drawdowns like in 2020, 2022, and 2024. [snip]
For those who haven't listened to the podcast or read the transcript, I would like to clarify that these "principles" were never mentioned during the extensive conversation.
Exactly ! I listened the podcast and read the transcript. Mr. Jacobson explains the complexity of the bond universe and how active management has greater probability to out-perform their respective indexes. It is refreshing to have an established bond analyst to discuss the process of exploring various sectors of bonds and their inefficiencies.
" It is refreshing to have an established bond analyst to discuss the process of exploring various sectors of bonds and their inefficiencies."
But I don't see why we need an "established bond analyst" when we already have FD1000.
As usual, your sarcasm is wrong. Several posters offered great bond options over the years, except you, of course. If you listened to M* and/or many analysts, you would miss the best options.
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Eric Jacobson did mention small-medium shops as good opportunities.
[snip] Eric Jacobson did mention small-medium shops as good opportunities.
You previously stated: "Consider funds from small to medium-sized shops; they often have more flexibility and can uncover opportunities larger firms can’t." Mr. Jacobson never mentioned anything of the sort. Perhaps you misconstrued the following statement?
"Well, generally speaking, private credit, especially in today’s world, really just normally means what they will call direct lending to middle-market companies. In other words, borrowing that is set up by these companies on behalf of—when I say these companies, these big money managers, private equity companies also—to lend money to smaller and midsize companies rather than usually the very largest and that kind of direct lending."
I’ve always maintained (in agreement with Jacobson) that bonds were more complex and more difficult to understand than stocks. And many who speak with an air of authority know much less than they think they do about bonds. Wanna pull up all the bond related 2020 threads and see how many were predicting an epic bond blowoff 1-2 years out? Jacobson more or less side stepped the larger issues with stocks like transparency, economic cycles, being superseded by new technology (ie Kodak), and the euphoria around individual stocks or segments of the market that can arise and persist for years if not decades.
What he and others here have said about bond indexes vs managed funds agrees with what I’ve heard. However, you take on more manager risk with actively managed bond funds. When the going gets tough you might be more inclined to blame the manager and bail, whereas it’s pretty hard to fault an index. And for at least some investors the lower fee bond indexes are not a bad idea, My plain vanilla is AGZD, which tracks an index of rate-hedged high quality bonds, is good enough for my needs. Transparency? ISTM there’s less with a managed bond fund then an index - at least in the higher quality realms..
There was a nice line in the interview about the rare breed who succeeds at successfully timing junk bond markets. Reminded me of one of our own.
" It is refreshing to have an established bond analyst to discuss the process of exploring various sectors of bonds and their inefficiencies."
But I don't see why we need an "established bond analyst" when we already have FD1000.
Well, if your toilet ain’t working, do you want a general therapist who claims to know a lot about everything from gutter repair to toasters? Or do you want a dedicated plumber with all the right tools?
Comments
Those familiar with history may remember that after a leak/tip to him about 2009 about Jeffrey Gundlach firing from TCW, he forced a REVOTE of 2009 Bond Manager of the Year and the result was changed from initial GUNDLACH to FUSS.
Jacobson then covered the new DoubleLine funds and rated some as unratable for years. I see that DLTNX / DBLTX (AUM $31 billion), for example, now shows Brian MORIARTY as the analyst. M* Analyst Archives don't go beyond 12/2022 and don't even show the analyst names. But the history lives in the Internet.
DoubleLine (AUM $50.57 billion) is what it is today due to Gundlach's determination and Howard MARK's initial funding and support for DoubleLine (of course, he got paid handsomely for his equity stake).
If your goal is to earn more with lower volatility, which is where I am since retirement, then a few principles stand out:
Consider funds from small to medium-sized shops; they often have more flexibility and can uncover opportunities larger firms can’t.
Newer funds can sometimes perform even better because they’re more nimble.
Don’t obsess over expense ratios; what ultimately matters is performance after fees.
The bond market is unique; certain segments can outperform for only a few months (sometimes longer), so active trading and tactical skill really matter.
Timing is also critical, especially avoiding major drawdowns like in 2020, 2022, and 2024.
I listened to most of the interview, but I didn’t hear much about where to invest now, which is ultimately the guidance most of us are looking for.
CEFs? I only use them when I’m completely out of the market due to very high risk, like in 2022, when they can drop sharply within days. In those situations I trade them for hours. Other than that, I don't touch them.
Thanks for the additional info regarding Jeffrey Gundlach.
Mr. Jacobson mentioned that several bond managers attempted to get him fired over the years.
I imagine Gundlach was one of them.
I would like to clarify that these "principles" were never mentioned during the extensive conversation.
But I don't see why we need an "established bond analyst" when we already have FD1000.
If you listened to M* and/or many analysts, you would miss the best options.
====================
Eric Jacobson did mention small-medium shops as good opportunities.
they often have more flexibility and can uncover opportunities larger firms can’t."
Mr. Jacobson never mentioned anything of the sort.
Perhaps you misconstrued the following statement?
"Well, generally speaking, private credit, especially in today’s world,
really just normally means what they will call direct lending to middle-market companies.
In other words, borrowing that is set up by these companies on behalf of—when I say these companies,
these big money managers, private equity companies also—to lend money to smaller
and midsize companies rather than usually the very largest and that kind of direct lending."
What he and others here have said about bond indexes vs managed funds agrees with what I’ve heard. However, you take on more manager risk with actively managed bond funds. When the going gets tough you might be more inclined to blame the manager and bail, whereas it’s pretty hard to fault an index. And for at least some investors the lower fee bond indexes are not a bad idea, My plain vanilla is AGZD, which tracks an index of rate-hedged high quality bonds, is good enough for my needs. Transparency? ISTM there’s less with a managed bond fund then an index - at least in the higher quality realms..
There was a nice line in the interview about the rare breed who succeeds at successfully timing junk bond markets. Reminded me of one of our own.