Gundlach's Total Return Fund Beats Rivals With Low Duration

(Bloomberg) -- For bond funds, duration is a big part of destiny this year.

The top-performing biggest intermediate bond funds, led by Jeffrey Gundlach’s DoubleLine Total Return Bond Fund, generally have shorter duration than rivals. And laggards, such as Western Asset Core Plus Bond Fund, have longer ones. Duration, one of several factors that determine performance, measures sensitivity to changes in interest rates.

Gundlach's Total Return Fund Beats Rivals With Low Duration

As yields on 10-year Treasuries have reached 3 percent, shorter duration is helping managers pare losses.

“We turned maximum bearish on 10-year yields and bonds generally July 6, 2016,” Gundlach told investors at a New York event on Tuesday. “We’ve remained in a bearish posture largely on rates since then.”

An exception to the rule: the Pimco Total Return Fund, which combines the lowest duration among the 10 biggest active funds but only middling performance. Intermediate funds generally get compared to the Bloomberg Barclays U.S. Aggregate Bond Index, which has a duration of 6.31 years.

“Duration is a part of the story, but only part,” Loren Fleckenstein, a DoubleLine analyst, wrote in an email. The firm also steers Total Return to what it calls a healthy Sherman ratio, which is the portfolio yield divided by portfolio duration.

DoubleLine Capital managed $119 billion across all strategies and vehicles as of March 31.

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