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? DSENX-DSEEX a little help please if you can



  • @davidmoran, my condolence to your loss. Since I never fully understood DSENX and its "secret sauce" strategy, I maintain a small position which I rebalanced half of it late last year to bonds. Other than the monthly dividend, the fund has high correlation to SPY and limited downside protection.
  • The DoubleLine Shiller Enhanced CAPE®, [is] an investment strategy pairing Shiller Barclays CAPE® with an active fixed income strategy (DoubleLine Short-Intermediate Duration Fixed Income, or SHINT. ...

    Introducing DoubleLine Short-Intermediate Fixed Income Strategy (“SHINT”)

    To construct portfolios across multiple sectors of the fixed income universe, including SHINT portfolios, DoubleLine applies a macroeconomic framework, led by portfolio managers and analysts who look across the spectrum of different asset classes. ...

    SHINT is a diversified fixed income strategy that, at present [April 2019], targets duration of one to three years while pursuing a yield of 3% to 4%. That yield target appears feasible in the current market environment, allowing the investment team to take a measured approach to both interest rate and credit risks. Freedom to allocate across multiple sectors of the fixed income universe also allows the team to construct a diversified fixed income portfolio with what DoubleLine believes to be the most attractive investments on a reward-to-risk basis. The two-pronged approach of coupling top-down macroeconomic views with bottom-up security selection provides potential benefits from both risk management as well as return-seeking opportunities.

    Actively managing the credit risk [non-AGG bond sectors] and interest-rate risk [IG bonds] of the portfolio is a key element to the asset allocation process. DoubleLine tilts the portfolio in the direction of one risk versus another based on the investment team’s macroeconomic forecasts and views on return and risk prospects within the sectors. ...

    Sector rotation of SHINT portfolios has tended to be gradual, due to the gradual shifts in the macroeconomic landscape.

    That contains a lot more, including a graph of the bond sector allocations over time.

    DSENX tracked CAPE until March, when it underperformed by about 6%. The gap has held steady since then. This suggests that the bond component was fairly flat (neither helping nor hurting) through February, and also after March. But that it dipped 6% in March.

    We've seen funds that have not recovered well, notably junk securitized debt. But those also fell much harder than 6%. So without peeking, I'd guess that DoubleLine had a mix of low grade securitized bonds and enough higher grade bonds to temper the dip. Taking more credit risk would also be consistent with trying to maintain that 3%+ yield while keeping a short duration.. Strangely enough, the bond fund I find with the closest match for that 2020 performance is TPINX. The portfolio is consistent with my guess: BBB credit rating, 2 year duration.

    Looking at the linked doc on the Enhanced CAPE strategy, it seems that DoubleLine missed a macro call in 2019. The doc is entitled: A Potential Solution for Investors in Rising-Rate Environments.
    Given indications that yields on the 10- and 30-year Treasuries put in a durable bottom in 2016, ending of the 35-year bull market in government bonds, investors have good reason to think about how to position portfolios for the next regime in fixed income. The investment team at DoubleLine is not calling for the advent of a secular bear market in fixed income. ... However, DoubleLine sees numerous fundamental factors presaging a rise in interest rates over the long run. Investors should study strategies that may not need the tailwind of declining rates to provide positive returns and perhaps have the potential to outperform in the face of rising rates.
    Finally (and why I was curious about this fund), M* started classifying it as a blend fund in 2019. Not all that surprising, since CAPE rotates among sectors that are most undervalued relative to their own prior valuations, not relative to the market. So it can easily rotate into more "growthy" sectors.
  • @msf Thanks for the useful information. What is your recommendation for this fund buy, sell or hold?
  • FWIW, and this is not advice, I'd consider it a hold or slight sell.

    As I asked in a recent thread on PIMIX, have your reasons for holding it changed? It's a 2x fund, 100% stock exposure + 100% bond exposure. That's always been true, it hasn't changed. If that was an appealing concept, it should still be. That fact that the some risks recently manifested shouldn't change one's perceptions - the idea of risk is that sometimes bad things actually do happen.

    If one bought it because one thought that an index-ish fund, a "smart beta" could beat market returns, then one should examine why one believes (or believed) that. Is this time really different, or is the market simply going through a different phase?

    Note that I'm not the one calling the CAPE index smart beta - Doubleline is. Doubleline acknowledges that pre-2012 performance of the index is just backtesting; and that Barclays is motivated to use to that present the index in the best possible light:
    Shiller Barclays CAPE® U.S. Sector Total Return Index..., a non-market cap-weighted, rules-based (aka “smart beta”) index.
    Pre-inception index performance refers to the period prior to the index inception date (defined as the period from the “Index Base Date” (September 3, 2002) to the “Index Live Date” September 3, 2012)). This performance is hypothetical and back-tested using criteria applied retroactively. It benefits from hindsight and knowledge of factors that may have favorably affected the performance and cannot account for all financial risk that may affect the actual performance of the index. It is in Barclays’ interest to demonstrate favorable pre-inception index performance. The actual performance of the index may vary significantly from the pre-inception index performance.
    From the same 2019 page as cited previously.

    The reason I might consider selling the fund if I owned it is because something has fundamentally changed - interest rates. Even with the use of swaps, the leverage to get 100% bond exposure is not free. That presents a hurdle, small in a normal interest rate environment, but significant in a near ZIRP world.

    Compare and contrast three large cap oriented 2x (equity + bond) funds: PXTIX, DSENX, and MWATX.

    Historically, PXTIX has performed as promised, beating its benchmark, the Russell 1000 Value, by half a percent for the past five years (in a low interest environment), 2% over ten years, 3% over 15. But falling about 1% short YTD.

    DSENX, excluding this year, beat CAPE by 2% in a couple of years, roughly matched CAPE in a couple, and then a -1% year followed by a +1% year. That's around a half percent a year, until this year, when it looks like it made a bad bond call. (To see the blow by blow comparisons, use this page, and then add CAPE as a fund to compare with.)

    It's fair to compare CAPE with the S&P 500, since that's the universe from which it is choosing sectors. M* shows that CAPE and DSENX over their lifetimes, more or less (10/31/13 to present) to have done better than the S&P 500. Both have cumulative returns around 130% vs. 110% for the S&P 500. More recently (3 years or less), they've underperformed. Whether this is just a market phase and that their outperformance will resume is fodder for a broader discussion about smart beta.

    MWATX is instructive because it doesn't use smart beta, just a 2x strategy. It significantly underperformed the S&P 500 in 2008, not catching up to the S&P 500 until the end of 2016. It took a much lighter hit this year, and is now within 1% of the index on performance since Feb 20. IMHO this shows that the leveraging works, but there's real risk and one needs to be patient. Also, it's an extremely tax-inefficient strategy.
  • >> the “Index Live Date” September 3, 2012

    Interesting that M* appears to track CAPE from (only from) 10/10 of that year.
  • msf
    edited July 2020
    I noticed that and didn't feel it was worth investigating. A guess is that "live" meant that Shiller was done designing his index. After Sept. 3, the design was set in stone and in front of the world for people to follow in real time. In contrast, it probably took another month to launch the CAPE ETN.
  • edited July 2020
    I took some heat back in March 2017 for referencing DSENX as “a bit of a black box.” It wasn’t meant to be derogatory. Heck, I’ve said the same thing about TMSRX which I own. But this old thread might shine light on some of the reservations expressed by me and others back when Gundlach had one of the hottest hands in town. A lot of my funds didn’t hold up well, either (DODBX for example) so I shouldn’t gloat about whatever fate may have befallen DSENX.

    I wrote: “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 ... 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.:)

    LINK - DSENX thread March, 2017 / You’ll need to hit the back arrow as this begins on the second page of a rather lengthy discussion.
  • @hank - linking tip. The time (or date) stamp under your name at the top of your posts is actually a link directly to your comment.

    Here's the LINK to your March 2017 comment.
  • edited July 2020
    fwiw, for the last 4m and shorter, as with the last 4y+ and longer, DSEEX has outperformed FXAIX nontrivially.

    So it arguably remains a good option for buy-hold. It has been doing its 'black box bond' thing for coming up on 7y.

    I would not recommend, to a holder, bailing out, nor switching to it from FXAIX either, necessarily. It is v hard to sustain an edge, as we all know.

    Yes, if you look at M* risk measures for 5y, you see its SD, return, and bear ranks are all higher than FXAIX and its Sharpe and Sortino both slightly lower.

    The bond sauce is spicy. Just compare DSEEX w/ CAPE for 3m vs ytd.
  • @msf- Thanks for that linking tip... I had no idea.
  • Another good discussion... thanks to all contributors!
    @msf I purchased DSENX as an index-ish companion to VTI in my domestic stock portfolio. Although PIMIX was "killing it" in the bond arena, I wanted to have a play on Gundlach's bond expertise as well.
  • those were the days
  • @davidrmoran Yes, they were! I'm hoping PIMIX will see better days again in the current low interest rate environment. DSENX has done poorly recently compared to VTI (its companion in my domestic portfolio), but I will hold as I evaluate further.
  • see my post just above

    vti is not the right comparison
  • edited July 2020
    I just looked. Gosh, DSENX is only off 3.5% YTD. Not bad at all. And it’s made good $$ for holders over the years. It’s hard (possibly counterproductive) to try to figure out why some funds excel and some lag over relatively brief periods. Many had their lights knocked out during the early March thru early April period. Like a dazed boxer, some are still struggling to their feet.

    I don’t follow HY much. But seems to me it had a rough stretch. To the extent Gundlach is invested in some non-investment grade paper, that might have pulled his fund down relative to similar funds.
  • @davidrmoran Agreed, but that's the comparison I use because, if I sold DSENX, I would use sale proceeds to purchase VTI
  • The granddaddy of them all in this space is PSLDX. IMHO among the greatest mutual funds of all time. You can get it for $25K at vanguard, but it's no free lunch. After holding for a few years with enormous gains there was a point in the past few months where virtually all of those gains were wiped out (brought tears to my eyes). Whatever derivatives were in the secret sauce were crushed to oblivion. But it came back hard and now up 17% YTD. This is a great strategy but would never put more than I could afford to lose in any opaque derivative-driven fund. For an ETF along the same lines but not as extreme check out NTSX. I'm long this as well as Dseex (a fine long term hold for sure).
  • msf
    edited July 2020
    I respectfully disagree with some attributes ascribed above to PSLDX, while acknowledging that it has significantly outperformed funds that could nominally be called its peers.

    While PIMCO dates its StocksPLUS strategy to 1986, this strategy is "used across [its] “PLUS” portfolios". The first PIMCO fund to use this strategy was PSTKX in 1993; PSLDX dates back only to 2007. MWATX, previously mentioned, started in 1998.

    The bond holdings in PSLDX strike me as less opaque than those of most PIMCO funds. It's in the name: long duration. No secret sauce. This fund, by mandate doesn't significantly alter its bond bets. Rather, this fund will soar (at least its bond portion will) as interest rates decline, and will crash as rates rise.

    [Effective duration is calculated by starting with modified duration (a well-defined, mechanical calculation based on coupons and maturities). One or more models are then used to estimate the duration effects of all the oddities of the bonds.]

    For this fund, effective duration = modified duration = 14.57 years (per M*). So there's very little going on outside of (long) vanilla bonds. Looking at the holdings, PIMCO appears to be tweaking around the edges with derivatives to adjust the bond portfolio attributes slightly.

    The 2x strategy (or StocksPlus strategy) gets 100% exposure to stocks at minimal cost by buying swaps on the target stock index. It then uses the remaining cash (almost 100%) to invest in bonds. DSENX is 100.69% long in stocks, 91.32% long in bonds, and short in cash by a similar amount. That's the way it's supposed to work.

    PSLDX goes further and adds even more leverage. You've still got the 100% stock exposure through swaps (M* says 102.31%). But the bond portfolio is leveraged: 127.69% per M*. So not only is this fund heavily exposed to interest rate risk (with its long bonds), but it is doubling down with leverage. Okay, it's just 1¼ x down; same idea.

    Because the fund must hold long bonds, there's no secret sauce here, or none worth mentioning. Just very long bonds combined with extra leverage on the bond side.

    FWIW M* classifies this fund as a hybrid (85%+ equity), while PSTKX, DSENX, and MWATX are classified as large cap blend funds. I suspect that's because the leverage on the bond side increases the bond exposure to the point that M* won't consider it a stock fund with just a bond kicker.

    If one is confident that rates won't rise at all for some time and that the yield curve (whatever little curvature there is) won't begin to curve a little more, then going long makes sense. Otherwise, those scenarios will crush this fund, at least relative to the others or to a vanilla stock fund.

    NTSX differs in several ways. Instead of 2x, it is 1.5x. Instead of 50/50 stock/bond exposure, it's 60/40. It does not have flexibility in allocating bond sectors; its only exposure is to Treasuries (via futures). Its target duration is 3-8 years, typically less than half of PSLDX, though I suspect more than that of the other funds. But it does actively manage duration.

    Its blurb touts the ability of the 1.5x strategy (90/60) "to enhance returns" by investing the the extra 50% (1/3 of the portfolio) in "noncore assets such as long/short equities, risk parity, CTAs, or true alternatives." However, upon reading further, one finds that the fund itself "invests 90% of its net assets in the 500 largest U.S. stocks by market capitalization" and "60% notional exposure to U.S. Treasury futures (2-, 5-, 10-, 30-year ladder)."

    That's not the same as the S&P 500 (which is not a compilation of the 500 largest US companies); nor does the prospectus even mention 500 companies. Rather "The Fund invests in a representative basket of U.S. equity securities of large-capitalization companies generally weighted by market capitalization." (Prospectus.) It invests directly in stocks rather than using swaps. That enables it to actively manage its equity side - another point of differentiation from the OEFs mentioned.

    Over its short life it has done nicely. Much (not all) of its performance seems to be due to leveraging. If one takes VBIAX's annulized performance over the past 21 months (the lifetime of NSTX), calculates its monthly performance from that, leverages 50%, and compounds that, one gets an annualized performance of 10.45%, still measurably below NSTX's 11.23%.
  • MSF, having held PSLDX for quite a while I can say that it does not correlate as directly to interest rates as one might expect. The general concept of the fund is that when stocks are down, bonds are up and vice versa, mitigating the impact of rising rates. In 2013 for example EDV was down 19.86%; Spy was up 32.31% and PSLDX was up 18.86%. So in that one year it under performed SPY but was hardly "crushed." In return the fund has averaged north of 21% for a decade while providing some of the cushion of a conventional balanced fund. PSLDX would do quite poorly in a rapidly rising rate/declining stock market scenario, but that has been historically rare (good write up on this in the NSTX literature). There are most definitely derivatives in play with PSLDX, and that makes it something I can't go all in on despite its incredible performance. As I mentioned, during the COVID swoon it lost a ton of value in a few sessions, not explained by the market and which SHOULD have been mitigated by soaring long bonds. Very scary, though the bounce back has been robust.
  • edited July 2020
    Yeah, since Feb 20 it looks chiefly like this aggressive 85% fund w LCG (???), and now is back to right where the somewhat similar VALIX is.

    That is some mid-March trough for sure.

    Longer-term it is all rock 'n' roll, and they sure did something yuge starting June 2019.

    $1M min??

    This is interesting, a little, from before mid-March:
  • msf
    edited July 2020
    Using rounded figures for back of the envelope calculations:

    2013 Price loss: 1 - 89.62/116 ~= 22¾% (Yahoo figures for 12/31/2012 and 12/30/2013)
    2013 Yield: -18.86% - (22¾%) ~= 4%

    Say that PSLDX had bonds of similar maturity, so it should have made 4% on the yield also.

    It should have lost about 13½/25 as much on bond prices (shorter duration), or about 12¼%
    It should have gained about 32¼% on the equity side.
    (Per mid 2013 prospectus, the target duration for PSLDX was 13½ years ±2 years)

    Thus it should have made: 32¼% + 4% - 12¼% ~= 24;%
    It not only got crushed by its long bond holdings, but underperformed as well.

    You are comparing a zero coupon bond fund with a coupon bond fund. That may be okay with a short term bond (or bond fund), but falls apart as maturities get longer. As Fidelity says:
    Generally, bonds with long maturities and low coupons have the longest durations. These bonds are more sensitive to a change in market interest rates and thus are more volatile in a changing rate environment. Conversely, bonds with shorter maturity dates or higher coupons will have shorter durations
    There are most definitely derivatives in play with PSLDX,
    AFAIK, nearly all the "play" is simply to gain leverage. There's a whole lot of investment engineering one can do with derivatives, as PIMCO typically does with its funds. In contrast, here derivatives are used primarily to get market exposure without putting up much cash: "It does this by purchasing low-cost S&P 500 derivatives exposure." These derivative mimic the S&P. It can then use the cash that it would have invested in the equity market to invest in bonds. There's your 2x leverage. Nothing funky.

    The marcom verbiage you're paraphrasing (with no quotes, no cites) says simply that when one mixes stocks and bonds, sometimes the bonds help, sometimes they hurt. I've posted on this too many times already to say much more than that. Other than to observe that one thing it omitted is that because this fund is leveraged roughly 2&frac14 x (100% stock exposure, 125% bond exposure) it could fall 2&frac14 times as fast as "the market" if both stocks and bonds fall. Which more than explains why :

    it lost a ton of value in a few sessions, not explained by the market
    From March 15 through March 23, PSLDX lost 21%, the S&P 500 lost 17%, and VWESX (an IG grade fund with a similar 14 year duration and similar 21-22 year maturity) lost 8%. Just adding the equity and bond losses together (forgetting about the extra 25% bond side leverage), one gets a loss of 25%. Impressive performance, actually.

    Here's a chart showing these funds, plus PSTKX over this short period.

    Equity, long bonds, leverage. Not much else going on here, no magic.

  • edited August 2020
    I trust most have been alert to the rocketing performance of DSEEX the last 4mos, as bond sauce adjustments have taken effect maybe
  • @davidmoran: Bravo if you stuck with DEESX since the big drop and kudos if you added shares. I am not in line for congrats because I bailed on DSENX while sticking with MOAT. I am very happy with the latter.
  • nope, almost all cash may 11, plus or minus; biding my time, rightly or wrongly
  • I've been skeptical of the rally myself. I've been using stock etf's to participate so I can sell promptly, if necessary, without incurring any oem transaction fees.
  • @carew388: using ETFs is a good way to avoid the short-term transaction fees Schwab and TDA assess. Not using TDA much anymore, but I remember some MF’s had a 180-day holding period there.
  • The other good thing for ETFs, in my mind, is you can place a trailing stop order. Like @carew388 I'm also skeptical of this market, especially going into the typical September swoon not to mention what will for sure be a tumultuous election process.

    I did this recently with QQQ. I sold a chunk of AKREX and put it into QQQ with a trailing stop of 5%. It's almost close to where if the order kicks in I would break even. I just don't want to ride all my equity money down 10, 15, 20% in another free-fall.
  • I too reducd QQQ and high growth funds and rotated to VGK, Europe ETF. They have COVID-19 situation in control and manufacturing is steadily returning.
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