Also, the DoubleLine fund’s outsized returns came early on when the fund managed $4 billion in 2010 and $15.3 billion in 2011. Whether Gundlach can return the fund to its glory days with $54 billion is a looming question.
The second headwind is that factor investing -- or smart beta -- is coming for active bond managers, just as it has for stock pickers. Index providers are turning traditional styles of active bond management into systematic and low-cost indexes. According to Morningstar data, 27 exchange-traded funds are already tracking factor bond indexes with total assets of $10.9 billion.
The Bloomberg Barclays U.S. Aggregate Enhanced Yield Index is one of many such indexes. It weights the bonds in the Aggregate Bond Index based on yield rather than market capitalization.
Gundlach has had more difficulty beating the Enhanced Yield Index. It beat the DoubleLine fund by 0.1 percentage points annually over the last three years through July. The index has also beaten the DoubleLine fund during 10 of the last 15 rolling three-year periods from May 2016 through July.
The recent performance of the Enhanced Yield Index also belies the notion that it’s been a particularly challenging environment for active bond managers. The Enhanced Yield Index has beaten the Aggregate Bond Index by an average of 0.3 percentage points annually over rolling three-year periods from August 2005 through July -- the longest period for which returns are available. But over the most recent three years, the Enhanced Yield Index has won by 0.6 percentage points annually.
Gundlach is one of the few remaining star managers. If he wants to continue carrying that mantle, he’ll have to find a way to outpace the passive and smart-beta bots.
This column was provided by Bloomberg News and does not necessarily reflect the opinion of the publication and its owners.