As I mentioned, I looked at their quarterly schedule of investments for December and they've used the swaps to get equity exposure with no cash outlay. Almost 80% of the NAV was invested in bonds of one sort or another, 13+% was what I would call cash and 8-% was other. I think, but I'm guessing, that almost all of that "other" is unrealized gains on their swaps. The notional amount of the swaps is very close to the amount they have invested in bonds and cash, so the NAV excluding the unrealized appreciation on the swaps.
So, what are the risks and how likely are they? I'd be happy if others have more to add because I would suggest for a minute that my list is complete.
1. As with any investment other things can do better. If the fund's 4 sector investments don't do as well or better than other sectors then the fund would have a more difficult time keeping up with the S&P 500, for instance. The theory is that CAPE has predictive ability and that will drive better returns. The studies I've read suggest CAPE does have statistically significant predictive power but it doesn't tell you much, if anything, about what will happen in the next month. I know they've done a great job of beating the S&P 500 every calendar year since inception but I'm not aware of anything about CAPE that would make me think it'll always be that way.
2. If the equity markets crash then the fund will perform just like the sectors it's invested in but it should do a bit better thanks to the income from the bonds. They won't have margin calls based on what I can determine and they know when their swaps expire so they should be able to sell bonds in an orderly fashion to pay off losses on those swaps. Without getting into the nitty gritty it looks to me like they have enough highly liquid bonds that they shouldn't end up having to sell less liquid bonds in a fire sale.
3. The worst case I can think of would be something like hyperinflation that drives short term interest rates very high and equity markets down, like in the 70s. If the transition to that was sudden then they'd be holding bonds that would lose value and could more than offset the income they pay plus they'd be losing money in equities just like their index and they'd do worse than the index rather than better. Is that possible? Sure. Is it likely? Probably not very.
4. Could they run into a problem where the counterparty on their swaps, Barclays in most cases, experienced a crisis and wasn't able to pay what the fund was owed? I guess so although you'd have to assume that's less likely today than 10 years ago but that would only eliminate gains the fund had made rather than the cost of its investments, which would depend instead on the counterparty to the hundreds of bonds they own.
It seems to me if you like or believe in CAPE as a "factor", since that's essentially what this fund is, then it's a pretty nice approach they've developed.
@hank, I also know you suggested taking a look would be under the hood of the bond holdings. I will eventually read the prospectus but just glancing through the list of investments and the fact sheet didn't strike me as anything crazy. It looked like a Gundlach bond portfolio and to a large degree I consider that a good thing.

Thanks for the provocative question @LLJB. A good one for @BobC or @msf to answer.
I'd like to play around with it (more for self-education than anything else), if you don't mind. DSENX is what I'd consider a "black-box" fund. To me the term to characterizes funds which (1) make extensive use of derivatives and/or (2) allow an unusually high degree of latitude on the part of the manager. I'll assume DSENX has the ability to short assets (related to use of derivatives).
Derivatives are subject to numerous risks. The linked summary prospectus http://www.doublelinefunds.com/wp-content/uploads/Shiller_Enhanced_CAPE_Sum_Pro.pdf prominently defines some of those. The Class N .89% ER is quite reasonable for this type of fund. Reported turnover is 67%. My understanding is that brokerage/trading fees are not reflected in a fund's ER, so expect a much higher amount of hidden cost compared to a plain vanilla equity fund.
If you create a 100% exposure to some type of equity index(s) through use of derivatives, while at the same time investing a significant portion in fixed income, than of course you're leveraging-out the equity exposure. Price swings on the equity side should be exaggerated compared to actual equity values. The managers, as you suggest, probably count on their fixed income holdings to moderate or offset the inherent equity volatility. Lipper's breakdown of holdings:
Bonds: 42%
Equity: 33%
Other: 18%
Where I'd take a second look, since you seem very knowledgeable about the equity orientation, is at the types of bond holdings allowed. It appears from the prospectus that fixed income (average maturity out to a maximum of 8 years) may include CMOs, high yield, floating rate, and just about anything else the manager wants to buy - including the kitchen sink. A lot of funds will try to hedge equity fluctuation with high quality bonds. This latitude in the fixed income end is a bit concerning to me. But I'm not Jeff Gundlach. :)
Not entirely sure what you hope to achieve through this fund. I've used black-box funds with varied success over the years, usually as hedges against equity/bond losses - but nothing quite like this one. Oppenheimer's ill-fated commodities fund (QRAAX) used derivatives to invest in various commodity futures. At times the fund would report bond holdings as high as 110% while still being fully exposed to commodities! The fund I replaced it with, Capital Income (OPPEX), is also a bit of a black-box. I trust the current manager. But in the wrong hands the fund could take a Kamakize dive at just the wrong time. Those buying DSENX are likely making a similar calculation based on Gundlach's excellent record.
FWIW: Lipper scores (3-year + old) DSENX very highly, giving 5 (its highest score) for "capital preservation" among "diversified equity" funds. These ratings are based on performance comparisons rather than any in-depth analysis. So tables could turn quickly, I suspect, if the style of investing were to fall out of favor.

$67,928 if you were earning 5% risk-free.
I used the calculator bee points us add and had it calculate $100 initial, $300/year addition (i.e., $25/month), compounded monthly for 50 years. The "compounded monthly" part just means we assume that your April portfolio would have undergone some modest appreciation so your May portfolio will be more than just April + $25.
It's a very imprecise calculation since it does assume all of the additions occur once a year through capital growth occurs, uninterrupted, monthly. The better answer would come from a Monte Carlo simulation. If you're familiar with Excel (Chip and Charles will happily testify to the fact that I am not), one of the faculty at Wabash College has posted a free Monte Carlo add-on for it. The technique also underlies the retirement calculators at T. Rowe Price and Vanguard.
Thanks, by the way, for helping your granddaughter. I've had this same conversation with one of my brothers about why (17 years ago) he should really be putting away $25 or $50 a month for his son's education. I even set up the account and put in some hundreds of dollars to start it. Mostly I got uncertain nods and a long-unfunded account in return. There's some research that suggests we need to visualize our future selves (in some cases researchers use "aging" software to accomplish the task) in order to make this work. Something like, "let's say you've worked like a dog for 40 years and now you find yourself living alone in a house that's too big with a quarter-century of 'vacation' in front of you. What do you imagine you'd want to be able to do or feel?"
For what that's worth,
David

FYI: Riding just one growth stock to big gains is always a challenge. But Will Danoff does it so often that Fidelity Contrafund has become a $107 billion behemoth that's returned an average annual 12.94% during his more than 27 years at the helm.
Regards,
Ted
http://www.investors.com/etfs-and-funds/mutual-funds/fidelitys-will-danoff-talks-about-the-super-bowl-and-super-stocks/

As is all too usual, I'm a little confused here. It looks like about 75% of the random growth stock group selections beat the S&P, while the previous post claimed value persevered. Polen beat the average random growth selection, of course (one would hope so, at a 1.35 e.r.), or it wouldn't have presented the "data."
Now, if John Bogle is right, and indexing beats active management; and value beats growth (not quoting St. Jack here; I think other studies have said that; and I think that was the thesis of this month's "elevator talk" ) does Polen's (US) Growth's record mean they will beat international managers (who might have more experience)?
I suspect other participants will enlighten my ignorance.

FYI: he RMB Mendon Financial Services Fund (the “Fund”) will “soft close” on March 15, 2017. This “soft close” is designed to ensure that the Fund continues to be managed in the best interests of its existing shareholders. Effective as of the close of trading on March 14, 2017, the availability of the Fund to new investors is limited. New investors in the Fund must meet certain requirements as set forth in the Fund’s prospectus to make an investment. Those who are shareholders of the Fund as of March 14, 2017, and who continue to be shareholders thereafter, may make additional investments in the Fund and also reinvest dividends and capital gain distributions in the Fund unless RMB Capital considers such additional purchases not to be in the best interests of the Fund and its other shareholders. Tickers impacted by the soft close are RMBKX, RMBLX, and RMBNX.
Regards,
Ted
http://www.businesswire.com/news/home/20170302006265/en
M* Snapshot RMBKX:
http://www.morningstar.com/funds/xnas/rmbkx/quote.html
Lipper Snapshot RMBKX:
http://www.marketwatch.com/investing/fund/rmbkx
RMBKX Is Unranked In The (FS) Fund Category By U.S. News & World Report:
http://money.usnews.com/funds/mutual-funds/financial/rmb-mendon-financial-services-fund/rmbkx

FYI: The S&P 500’s 1.37% gain yesterday was the sixth best start to March (1st trading day of the month) in the index’s history. Below is a quick table highlighting all 1%+ gains on the first trading day of March for the S&P 500 since 1928.
Regards,
Ted
https://www.bespokepremium.com/think-big-blog/sixth-best-start-to-march-on-record/

Sandra- surely you can't really believe that my changing some chart parameters to allow for larger than normal increases in investment gains is an accurate predictor of anything. Nonetheless, it has worked out that way a fair number of times. Make of that what you will.

new funds that may attract investor capital, but will cost them dearly

Hi @VintageFreak and others,
I also harvest some of my capital gains along the way each year so they want go to waste during a stock market correction. The amount I take each varries based upon a target income amount I shoot to achieve each year from my portfolio. The twenty percent that you shoot for each year is more in the range of 5% to 10% for me. This is one of the ways that helps me maintain a high cash level within my portfolio (capital gain harvest).
Take care and I enjoy reading your post.
Old_Skeet

It's not just an effective strategy for managing volatility, it can significantly beat the market in cases of significant downturns, although it would tend to trail in cases where an investor gets whipsawed. From late 2000 until the beginning of 2013 the S&P went nowhere (excluding dividends, which isn't unimportant, but both the 10 month and 12 month moving average systems made enough gains that someone could get whipsawed a lot and still be ahead. The real question is whether you fear a big downturn or fear being whipsawed more in the future. Considering the volatility benefits it would seem like a decent chance of significantly improving risk adjusted returns and possibly absolute returns, although the internet bubble and the credit crisis were a big help in the last 15+ years.

FYI: Dennis Gartman is the man behind The Gartman Letter, a daily newsletter discussing global capital markets. For almost 30 years, The Gartman Letter has tackled the political, economic and social trends shaping the world's markets. ETF.com recently caught up with Gartman to discuss the latest developments in the financial markets.
Regards,
Ted
http://www.etf.com/sections/features-and-news/gartman-dont-buy-stocks-consider-gold?nopaging=1

Best and Worst sometimes has a lot to do with timing...when you buy a fund. For example, WASYX had a fantastic run until it ran into problems with asset bloat and big management changes. Those folks who owned it from 2007- 2013 and sold it for whatever reason probably loved it. Even with some stinker years, especially the last 3+ years, its 15-yr average return is about 8%. But this is why WHO runs an actively-managed fund is so critical, as is asset bloat and the problems it might cause.
Investors often are late to the party with funds, getting if after the big gains. Once the fund gains large numbers of assets, it may be unable to continue using its unique strategy. Certainly MFLDX is a good example of this. Spectacular numbers from inception 2008 through much of 2013 (assets ballooned from $35 million to almost $16 billion), then running of the tracks and crashing, not recovering even as assets dropped to $370 million. Here there was no management change. In hindsight, the small fund's purchase by a large fund company was likely a big mistake.
I would urge caution about labeling relatively new funds "Best". "Best" can mean different things to different investors. While I personally own SIGIX because of its manager's track record, the fund is barely 5 years old. I own it because I believe it is a good compliment to a higher-volatility index like SCHE. It may not have the best long-term total return numbers, but I am ok with that.

@msf I agree it is virtually impossible to do business or invest without entering some of these ethical/political grey areas. It is part of life and it would be hard to function on a practical level otherwise, so yes we can try and must sometimes separate these political and financial goals to function. But there is inevitably a point for many people where the political/ethical intersects with investment goals to such a degree that action for a person of conscience is necessary. It is the reason socially responsible investing exists.
What the particular ethical line is beyond which is unacceptable is of course up to each individual's taste and conscience. But for an investor to say such ethical lines don't exist for them and that they are thus "apolitical" is actually I think misguided. That person is actually endorsing a harsh libertarian ideology, an extreme political stance that believes that profit takes precedence over everything else.
Among the embedded political views in the profit above everything else investment philosophy you can deduce the following:
1. Low to no taxes--corporate and capital gains especially--as getting rid of these increases investor profits.
2. No government regulations of business except for those that protect property rights as this increases corporate profits.
3. Anti-labor. No minimum wage, no labor safety requirements, no unions as all of these reduce profits.
4. No consumer protection--as class action lawsuits and federal regs to protect consumers reduce profits.
While an investor may disagree with these ideas in their separate political silo as you say, they are implicitly endorsing them by investing in companies and with money managers that are actively seeking these goals. There is a kind of hypocrisy to this, and many people have pointed this out with regard to Warren Buffett. But we live in a world where to function one must be hypocritical sometimes. It is a matter of degrees. But the extremist politically is the libertarian investor who claims those degrees don't matter or don't exist.

"The bundle of hedge funds had compound annual returns of 2.2 percent in the nine years through 2016, compared with 7.1 percent for the index fund. The billionaire estimated that about 60 percent of the gains that the hedge funds produced during that period were eaten up by management fees."
Here's the arithmetic:
5.25% gross for the hedge funds.
2+20 in fees = 2% + 1.05% = 3.05% fees
5.25% - 3.05% = 2.2% net.
3.05% fees/5.25% gross is approximately 60%
If hedge fund managers underperformed the market (before fees), and index funds merely matched the market (before fees), then everyone else outperformed the market on average. That means individual investors and active mutual funds on (dollar-weighted) average beat the index funds.
This is just Sharpe's argument that you can't beat the market. In order for someone to outperform, there has to be someone who was underperforming. Fortunately, active investors had a bunch of losers they could take advantage of over the past nine years. Hedge funds.

@LewisBraham To a large degree, I agree with you. I do not want to be investing in companies that do bad things. Someone wrote, in another thread, that what Wells Fargo did was not out of the ordinary. (Everyone does it, so it's okay.) If this is indeed business as usual, then all businesses need to be prosecuted. I do not support ill-gotten gains.
(Withholding information can be addressed under products liability laws, e.g. defective products under the theory of failure to warn.)
But IMHO there's a difference between investing in what is legal and working toward changing those laws. I may advocate a $15 min wage, but I do not decline to do business with or invest in companies that don't meet that standard. Like Buffett, I may support politicians who would increase my taxes but I don't pay more in taxes than the current code requires me to pay.
I still feel that one can separate one's actions from one's advocacy.
Regarding hiring: Say I was opposed to virtually all government regulation (too oppressive), and I needed to contract a writer for a primer on "what is a stock". Should I refuse to consider hiring you, not because you would incorporate your views into that writing (I assume you would do an objective, professional job), but because you might spend some of your earnings supporting positions I disagreed with? That approach would make it hard to hire anyone.
If my assumption is wrong, and you're going to let your views affect your work, then clearly I should reconsider.

@MikeM - Did you mean PWRCX (Power Income Class C) or PRWCX (T. Rowe Price Capital Appreciation)?
Oops @rforno beat me to this observation. I think we can safely assume Mike meant PRWCX Capital Appreciation. Own and agree it's a great fund from a fine family. Probably "overbought" at this time - if the term may be applied to a fund.

And while I do respect your desire to keep politics out of financial affairs, it is a real fact (not one of the new "alternative" variety) that Mr. Obama was the president during that time frame. I'm not postulating that the presidency is directly responsible for financial losses or gains, simply remarking on the facts.
So your response is to hijack this thread just to get the last word? Desperately pitiful.
I apologize @johnN. This was a good discussion you started. Do not let the political interruption overrun your thread.

@JohnChisum- Well, yes, but still take into account that the particular time frame involved was right in the middle of the recovery from the "almost depression" of 2007/08.
And while I do respect your desire to keep politics out of financial affairs, it is a real fact (not one of the new "alternative" variety) that Mr. Obama was the president during that time frame. I'm not postulating that the presidency is directly responsible for financial losses or gains, simply remarking on the facts.

I confess to being a "half-glass-empty" investor. --- So like the late, great Dr. Martin Zweig, I find myself "worried" (and am always "worried")...
The link below is to a chart I watch from time-to-time..
https://fred.stlouisfed.org/series/BAMLH0A0HYM2
Tight spreads imply business optimism is (largely) discounted. Can the spread tighen (i.e. support to junk prices) yet further? Sure. But how much optimism is left to be discovered by the capital markets?
The thing is, junk-debt as an asset class is a 'risk-on' asset. If (when) it loses a bid, its very likely that equities will come under pressure too. The old saw goes : "the only thing that goes up in a bear market is correllation." So if one is skiddish about junk's prospects, one should also have a wary eye on equities...