@MikeM. I was making up my own definition. :-)
Like the other day while we were taking a stroll I said "Look! Orange Bonnets". When my wife looked crossly at me I asked her why I wasn't allowed to name flowers.
I'm just saying I don't trust anyone like M* and Lipper to classify the fund. This is a unique fund. If it was just investing in CAPE stocks it wouldn't be. However it does not do that, does it?
DSENX is as well spelled out as LMVTX used to me IMHO. It's "value" is hard to understand. I am hardly comparing it to MFLDX or any other fund. Matter of fact that's what I'm saying. Stop comparing it with any other fund - for me the definition of "alternative". Just like "orange bonnets". And this one also kicks out a bit of cash every other month. I like.

- I don't see DSENX as an alternative fund at all. It invests in value sectors of the S&P 500
- nothing akin to MFLDX in it's method. No manager guessing at allocation.
- don't see it as black box either. It is pretty well spelled out what it does.
- not going to do the analysis, but I don't believe any mix of CAPE and DBLTX has achieve the same returns as DSENX.
- as far as what can go wrong, value investing can and does lag growth investing from time to time
I definitely enjoyed this thread though. This fund is one of my favorites and now a high percentage of self managed portfolio. I could sit back and say nothing lasts forever or to good to be true and not invest, but the bottom line is something with this formula is working very well. CAPE is a known commodity. Just hope it doesn't end up a group-think fund 3 years from now. I'll take the chance.

>>Again, math denseness on my part probably, but I have been graphing CAPE, DBLTX, and DSEEX since 12/13, and it looks like the bond add (delta) to the last is somehow greater than if you just owned the etn with some fraction of DBLTX. Thoughts?
DSEEX essentially gets the CAPE return for free, without investing any assets, and then gets a fixed income portfolio on top of it with the assets in the fund. That fixed income portfolio is currently shorter duration and higher credit quality than DBLTX.
The return for DBLTX is lower than CAPE so if you couldn't use the assets of the fund twice, as DSEEX does, you would reduce the overall return of CAPE for whatever portion you used for DBLTX. That could cause the effect your talking about but it would be caused by the difference in leverage.
However, if you could use the same assets to invest in both DBLTX and CAPE you would come out ahead of DSEEX... except last year when I guess the shorter duration helped DSEEX after the election made enough of a difference to pull DSEEX ahead of CAPE plus DBLTX by a couple hundredths of a percent.
If you look at the Performance page for DSEEX at M* and add CAPE and DBLTX to the graph to compare you'll see the annual returns for each below. In fact, if you go down to the bottom of the page you can even look at the monthly returns for the 3 funds and for the S&P 500, which is included as the benchmark.

>>forgive thickness, but not seeing how ...
Regardless of whether you see how, Shiller does. The index removes one of the five lowest CAPE sectors due to fear of a value trap (low momentum remaining low). If one of the ten sectors that ought to outperform is eliminated because it might not, then surely it's possible that a second would also fall into this trap, and a third, and a fourth.
The index is a variant of a Dogs of the Dow strategy, where you pick by sectors rather than by stocks, and look at the past ten years rather than the past year, and then throw out the worst dog. It's not guaranteed any more than the Dogs is (are?).

\\\ If the sectors with high CAPE just keep getting higher and outperform those with a lower CAPE ...
forgive thickness, but not seeing how:
>> subdivides the S&P 500 into 10 sectors, [every month] eliminating the 5 with the highest relative CAPE ratios, leaving what we believe are the 5 better value proposition sectors. Index methodology eliminates the one sector with the worst one-year momentum ...

@davidrmoran: "I am having trouble thinking of a scenario where their monthly churn re the four auto-chosen SP500 sectors could underperform SP500 in aggregate."
If the sectors with high CAPE just keep getting higher and outperform those with a lower CAPE, DSENX's equity portion would underperform the S&P, though it would still rise, no? Or maybe the sector they've avoided as a value trap zooms back up before they rebalance...

@LLJB, fine digging.
You are welcome always, but again, David S gets the first and most important credit for uncovering and writing this thing up.
Question re 1:
I am having trouble thinking of a scenario where their monthly churn re the four auto-chosen SP500 sectors could underperform SP500 in aggregate. (Maybe thickheadedness on my part.) Thoughts?
Question re your last point:
Again, math denseness on my part probably, but I have been graphing CAPE, DBLTX, and DSEEX since 12/13, and it looks like the bond add (delta) to the last is somehow greater than if you just owned the etn with some fraction of DBLTX. Thoughts?

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.

>> The funds are not planning to buy low and sell high. They're planning to track the index, wherever it leads ....
Where would that be?
Reminders:
etf.com:
The Barclays ETN+ Shiller CAPE ETN tracks an index that selects 4 sectors in the S&P500 using longterm relative value and price momentum. The 4 sectors are equal-weighted. Stocks in each sector are cap-weighted. CAPE is a unique offering in the LC segment, as it covers just four of the nine S&P500 sectors at any time. The underlying index equally weights the four sectors with the strongest relative strength and momentum. This exposure is dynamic, subject to a monthly rebalance ...

from @MikeM, a few weeks ago:
If you believe in the axiom buy low sell high, value, this strategy does the work for you.
From the Doubleline site:
Strategy
The Shiller Enhanced CAPE strategy offers exposure to the “cheapest sectors” of the large cap equity markets using an “Index Overlay” technique while the remaining assets are invested in a fixed income portfolio...
...The Relative CAPE Ratio subdivides the S&P 500 into 10 sectors, eliminating the 5 with the highest relative CAPE ratios, leaving what we believe are the 5 better value proposition sectors. Index methodology eliminates the one sector with the worst one-year momentum, to try and avoid the value trap...
Using a total return index swap to gain the exposure to the Barclays Shiller CAPE US Sector Index, the remaining assets are then invested into, what we believe to be, a lower-risk bond portfolio with the goal of trying to outperform cash.

A fair number of funds have similar strategies (though they're often tied to the S&P 500 index or something else less "esoteric" than the CAPE index).
The idea is not the the bonds moderate the volatility, but that they enhance returns. That is, you're getting 100% equity exposure for virtually nothing (hence they high leverage multiplier), and you've got cash left over to "enhance" the index returns.
The funds are not planning to buy low and sell high. They're planning to track the index, wherever it leads, but also to add alpha from fixed income. To do that, they have to make more on their (long term) loans than it costs them (short term rates) to buy index tracking derivatives.
I've not tried to work through the details, but this Kiplinger article in the WashPost a few years ago expands on what I wrote, in its description of MWATX and PSPAX, two funds that try to enhance S&P 500 returns through futures.
http://www.washingtonpost.com/wp-dyn/content/article/2008/04/07/AR2008040700711_pf.html
PIMCO claims it has been doing this since 1986.

>> if the style of investing were to fall out of favor.
This has been mentioned before. What does it mean and how would it happen? Wholesale bailing from US LC equities? CAPE tracks SP500 quite closely (regularly outperforming it to some extent) over the last 4.5y, 3y, 2y, 1y, and ytd. So 'style of investing' decline would entail overall slump in SP500, right? Anything else?

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.

There have been a lot of discussions about the Doubleline Schiller Enhanced CAPE funds, primarily DSENX, but I'd like to make sure I know how they work before doing anything with them. I would appreciate any corrections or clarifications.
In basic terms the fund is comprised of 4 out of the 5 cheapest sectors based on CAPE and the sector exposure is adjusted monthly. The funds achieves this exposure primarily through swaps. Swaps are very flexible because 2 parties can effectively agree to "bet" against each other over a period of time and they can negotiate the specific terms. By doing this they essentially replicate the index and gain the appropriate value exposure to the chosen sectors. At the least, however, the fund has to be gaining leverage through their use of swaps. It could be that neither party is actually investing or shorting the sectors but instead they just have a "paper" bet and each party only has to be concerned about the others ability to pay if they lose where the leverage comes from not actually "buying" anything. Or it could come in the form similar to futures contracts where the investment is leveraged and you only need to maintain a small portion of the value of the investment as margin.
Regardless of how they achieve the leverage the fund has therefore gained the ability to "perform" as if they had all their assets invested in those 4 sectors without investing all their cash and they use that excess cash to buy bonds, earn income and "enhance" the return that the index achieves.
To the extent that they use most or all of their excess cash to buy bonds, part of the risk is that they'd need to liquidate bonds to pay losses when the swap expires if the fund's sector exposures lose value. This might be why they have 18% of their fixed income investments in US govt. bonds, since they wouldn't be difficult to liquidate if it was necessary. They also have 8.7% in pure cash which I guess could be a margin requirement or could simply be a way of limiting the likelihood that they'd be forced to liquidate bonds if the equity investments lose money.
I guess to the extent that any of their swaps aren't readily marketable they would have to include a provision that either party could "end" the bet at any time. This would allow them to reallocate to whatever sectors are chosen each month, but my knowledge about the details of how they're effecting these swaps is basically non-existent so its just a guess.
Maybe I'm missing something but it seems like the main risks with the fund are related to the terms of the swap, which the public probably never finds out unless someone spills the beans and whether the fixed income securities they choose are sensitive to interest rates and could more than offset the income they produce due to a loss of value. Since a good majority of those bonds, according to the fact sheet, have short durations, it would at least seem like they're not being overly aggressive with their goal of "enhancing" the index.

@PRESSmUP @catch22 - The M* sector table has blanks (well, dashes actually) in the fund's column. The other columns (category and benchmark) do have values.
It always pays to go back to the source:
http://www.doublelinefunds.com/shiller-enhanced-cape/statistics/ or
http://www.doublelinefunds.com/wp-content/uploads/shiller-enhanced-cape-fact-sheet.pdf
(aside from noise, 1/4 in each of Consumer Staples, Consumer Discretionary, Industrials, and Technology, as of end of January)
Barclays (CAPE ETN) is not as forthcoming. It lists only Consumer Staples, Industrials, and Technology (as comprising 75% of the fund). It forgets to list a fourth sector.
http://www.etnplus.com/US/7/en/details.app?instrumentId=174066
(click on Index Sector Weightings Tab)
It is curious that one of the supposed advantages of index funds is transparency, yet people are having difficulty finding out what sectors, let alone what securities, the fund holds.
Some of that is likely due to the fact that Doubleline gets equity exposure with derivatives, some of that is due to the index being proprietary, some of that is due to CAPE being an ETN that doesn't even hold anything (it's just a note that promises to pay according to the index performance).

@MikeM Please let us know where you found sector allocation for DSENX? M* does not have such information for DSENX or CAPE index.

Some facts about teacher retirement plans in CT (each state has it own approach):
-CT teachers contribute to medicare, but not Social Security. CT teachers contribute to a State run retirement system in lieu of receiving SS.
-CT is attempting (a bill proposed by the governor to help balance the budget this year) to shift the shared retirement contributions from (State & the Teacher) to the towns (State, Municipality & the teacher).
-City/town teachers and their unions negotiate with local Administration (superintentent, HR, etc...and now TPAs...Third Party Administrators) usually not (the state, city, or local Board of Ed) when it comes to 403(b) plans.
-Individual teachers have to advocate for non-annuity products and attempt to implement 403(b)(7) plans themselves. Many roadblocks stand in the way of making these changes and options available.
-There was once an escape hatch (90-24 transfer) where an 403(b) annuity account could be surrendered and the account balance (after surrender fees) could be transferred to a company like Vanguard who provide 403(b)(7) options like Index funds. Curiously IRS law was changed to prohibit this. Here's a link to this topic from 2005 before the law changed:403bwise.com/index.php?showtopic=830
A little known option for individual teachers in CT is to utilize (by making voluntary contributions) to their voluntary account with CTRB (CT Teachers Retirement Board).
Link:ct.gov/trb/lib/trb/formsandpubs/VoluntaryBulletin.pdf
There are no expense ratio, no fees, and you receive a yearly return equal to the return of the state managed retirement fund. These contributions are after tax contributions that can later be applied to an extra annuity that the state offers at retirement or can be transferred (trustee to trustee) to any brokerage house at retirement.
Other state might have similar options.
Here's how the fund invests and its return:
ott.ct.gov/pensiondocs/fundperf/FundPerformance12312016.pdf
403bwise is a good resource for asking questions and seeking answers.
403bwise.com/

Also SGOIX 4.8%, FOSFX 4.4%, DVY 2.93%, and CAPE 6.24%.

My understanding is DSENX is using index swap to buy CAPE index. Instead of paying investors' cash for the stock index it invests all money into fix income instruments and then exchange (or swap) fix income return with CAPE index through an agreement with a counterparty. Index swaps are typical instrument for fix income funds that want to have exposure or invest to equity market.
So the fund is called a double value fund as it is using both CAPE index and fix income as the sources of its return. Performance of DSENX should be better than CAPE index as investors' money first go to fix income investment. DSENX should be considered as an enhanced equity index fund and not a balanced fund.

@MikeM
>> Doubleline actively managed fixed income portfolio
Yes, exactly, that's the secret bond sauce, as I was trying to explain. Courtesy Gundlach the pol prognosticator.
But not 40% or anything close to it. Their own announced benchmark is SP500. Observe how closely it tracks CAPE, slightly surpassing it, and that extent accounted for by the FI portion.

It does have that balancing bond component / secret sauce.

@davidrmoran
Not sure how you can say that. The Doubleine information says it has 2 components:
- Barclays Shiller CAPE® US Sector Index
- Doubleline actively managed fixed income portfolio
The secret sauce may just be the fact it uses only 4 of the 5 under valued sectors leaving out the worst trending sector.
Whatever it is, I treat it as a balanced fund and hold it equally along with PRWCX and ICMBX to make up 45% of my self managed portf.