Obviously there has been a lot of discussion regarding this fund and rightfully so given its performance, albeit just 3 years.
I am a recent investor in DSEEX/DSENX and like the price action vs the S&P500. I have read on this and other forums that some feel this fund is NOT a "core" holding unlike an S&P500 idx fund.
Maybe this comparision is not exactly "apples-to-apples" but it does seem to be a fair correlation.
What are your thoughts on this fund as a "core" holding and what percentage-range of your stock holdings should a fund like DSEEX be?
Of course, I recognize everybody's risk tolerance and objectives are different. I am just looking for some guidance and opinions; I am still in the growth stage.
Thank you for any input and thoughts,
Matt

I tend to agree with MikeM that the "black box" thesis is overblown, though with different details.
If you look at DSENX's portfolio, it has full exposure to the Schiller CAPE US sector index by buying total return equity swaps on the index. If you're spooked by all derivatives (including options like covered calls), then by all means stay away. As far as derivatives go, equity swaps seem pretty tame, especially as the counterparty can hedge away the equity risk on its side.
Basically, DSENX pays Barclays and BNP Paribas (two huge investment banks) a large enough cash stream to cover the cost of borrowing money to buy the index equities (should they choose to hedge). The banks can make a profit on their ability to actually raise that money at lower cost, on lending the securities, etc. In exchange for that cash stream, these banks pay DSENX the total return on those equities. (If the portfolio loses money, DSENX has to cover the loss). Alternatively, the banks can use this to reduce their exposure to equities they already have in their portfolio, while simultaneously pocketing that cash stream.
Pretty basic stuff as far as derivatives go. Since DSENX has to put up virtually $0 cash for its equity exposure, it can simultaneously be 100% long in bonds. It uses some of the fixed income to pay the cash stream to the banks, and holds the rest as profits for the fund's investors.
Therein lie the risks. The first risk is in the fact that this is a highly leveraged fund. Not in the traditional sense of investing, say 150% in the market by borrowing, but by investing 100% in equities and 100% in bonds. The prospectus even says this, emphatically (in italics) and explicitly:
The Fund uses investment leverage in seeking to provide both the Index return and the return on a portfolio of debt securities; it is likely that the Fund will have simultaneous exposures both to the Index and to debt securities, in each case in an amount potentially up to the value of the Fund’s assets.
Fidelity recognizes this, going so far as to require you to sign a declaration form before it allows you to invest in DSENX. You have to state that you're a sophisticated investor, that you know what you're doing, that you can afford losing 100% of your investment, etc.
The second risk is with Doubleline's style of bond investing. IMHO that's where the black box is. I can't tell you what's going on in their bond funds any more than I can tell you what PIMCO is doing. If you want to trust Gundlach with bonds that's fine, you're buying into his black box.
What I normally expect from this kind of strategy is 100% exposure to the index being tracked, plus a small alpha from a conservatively managed bond portfolio. But what this fund is doing is investing aggressively on the bond side. Hence the outsized returns since inception, a period when both equities and bonds have done well.
Unfortunately, if you buy into the CAPE sector index thesis, there's not a "safe" vehicle to get exposure. You've got this fund which has the risks above, and you have CAPE, which as an ETN has single creditor risk. (You risk your principal if an ETN defaults; you risk only your profits if a total return swap counterparty defaults.)

I'm not really following the "black box" concept being applied to DSENX. It's pretty straight forward it invest in the S&P 500 sectors deemed to have the most value and along with that a fixed income allotment that are swaps and/or derivatives. Heck, most PIMCO funds do that and possibly many other of your favorite fund families. I may not understand the exact formula for DSENX, but I can see the result over the past year+ that I've owned it. Apparently the concept is not for everyone, but that's ok by me. I'm good until the day it doesn't out-perform.
That said, I wouldn't touch the European version now. It would need some kind of track record for me. We can call it 'the same' and "should" have the same edge as the domestic version of CAPE if we want, but prove it first is my philosophy to any brand new fund.

I see @Charles's points. Other recent threads or at least posts speak of ETFs that "change stripes" or purport to follow an index no one has ever heard of. The same could be said of DSENX and DLEUX. Are these funds the equivalent of what in my field used to be called "the latest crazy idea from France"? Needless to say, France has declined in more ways than one and it certainly is not generating any new intellectual fervor. Marine Le Pen is a throwback to populist movements that have often shaken France. Will the CAPE/Schiller craze prove to be no more than the latest crazy idea from Wall Street?
As for investments I don't understand, which seem to be the brain children of financial engineering, I'm leery but fascinated. As for genetic engineering, I'm generally OK but my wife bombards me with links to anti-GMO sites and won't allow GMO food in the house. I mention this because I own DSENX even though I can't fathom the managers' methods and I think GMO products improve the world, all the while not understanding the science. What's a humanities guy to do in this world? Go around the neighborhood and buy shares in businesses I like à la Peter Lynch? I can hear the answer already: buy index funds and keep your nutty ideas to yourself (LOL).

Buy Cape!!

>> I'd prefer not to pay more than $10K for $10K worth of securities.
haha, there goes the system. I'd prefer not to pay any markup ever for anything, cars, groceries, furniture. Actually no, I don't mind; I know that's how the service gets provided. Everything in life should be like VFIAX.
CAPE is an etn. But to switch fruit, since it outperforms VFIAX so consistently, from inception and every interval since, again, who cares?

If I want to buy a $10K interest the Vanguard 500 portfolio, I could pay exactly $10K for VFIAX. Or I could pay a bit more for VOO shares representing the same $10K interest in the portfolio because of the added cost of the spread. I'd prefer not to pay more than $10K for $10K worth of securities.
Regardless of how large or small that added cost is, it is a drawback inherent in the ETF design. Though perhaps it is one that you may not personally care about.
Regarding the size of that spread, Ted's 1 basis point spread is more the exception than the rule. For example, CAPE has a typical spread of 15 basis points. Here's Vanguard's table of spreads on its ETF share class.
With SPY and VFINX Ted is comparing oranges and tangerines (close but still different). The question was what downsides there were to ETFs, not whether ETF 1 was better or worse than OEF 2.
The only way I know to do an apples to apples comparison using concrete funds rather than discussing different attributes of ETFs and OEF is to compare ETF and OEF shares of the same underlying portfolio. Say VFIAX vs. VOO. Since these are shares of the same portfolio, and since they have the same ER, the only factors affecting performance should be due to the nature of the shares and not of the particular fund.
Here's the M* comparison over the past ten years.
As of April 18, 2017, VFIAX'sVOO's cumulative return was 97.23%, while VOO's was 96.59%. That doesn't include dinging VOO for the cost of the spread.
If you add SPY to the M* comparison chart, you'll find its performance was even worse, at 95.66%. But that's because of the design of the fund (cash drag due to UIT structure plus higher ER). Those additional variables confound the data.
A tip for the linkster - to link to a M* page comparing funds, one needs to link to the chart page (there's a "share this chart" link there). The only fund that shows up when one links to a M* performance page is the original fund; the compared funds don't get passed through the link.

Hi @golub1,
I have three hybrid sleeves and with this I just decided to post a description of my sleeve management system along with current holdings which includes area allocations as of April 1, 2017. This does not include the seasonal revision to my portfolio's new overall allocations noted in my above post but it will provide fund holdings that you seek. Come fall, I'll most likely be back to the overall allocations described below.
Old_Skeet's Sleeve Management System
Now being in retirement here is a brief description of my sleeve management system which I organized to better help manage the investments held within mine & my wife’s combined portfolios. Currently, the master portfolio is comprised of two taxable investment accounts, two self directed ira accounts, a health savings account plus two bank accounts. With this, I came up with four investment areas. They are a cash area which consist of two sleeves … an investment cash sleeve and a demand cash sleeve. The next area is the income area which consists of two sleeves … a fixed income sleeve and a hybrid income sleeve. Then there is the growth & income area which has more risk associated with it than the income area and it consist of four sleeves … a global equity sleeve, a global hybrid sleeve, a domestic equity sleeve and a domestic hybrid sleeve. An finally there is the growth area, where the most risk in the portfolio is found and it consist of five sleeves … a global sleeve, a large/mid cap sleeve, a small/mid cap sleeve, a specialty/theme sleeve plus a special investment (spiff) sleeve. Each sleeve (in most cases) consists of three to nine funds with the size and the weight of each sleeve can easily be adjusted, from time-to-time, by adjusting the number of funds and amounts held the exception is the spiff sleeve. By using the sleeve system one can get a better picture of their overall investment landscape and weightings by sleeve and area. In addition, I have found it beneficial to Xray each fund, each sleeve, each investment area, and the portfolio as a whole quarterly. Again, weightings can be adjusted form time-to-time as to how I might be reading the markets along with using an adaptive allocation matrix as an aid to help set the stock allocation weighting. All funds pay their distributions to the cash area of the portfolio with the exception being those in my health savings accounts where reinvestment occurs. With the other accounts paying to the cash area builds the cash area of the portfolio to meet the portfolio’s monthly cash disbursement amount (if necessary) with the residual being left for new investment opportunity. Generally, in any one year, I take no more than a sum equal to one half of my portfolio’s average five year return. In this way, principal builds over time. In addition, most buy/sell trades settle from, or to, the cash area with some net asset value exchanges between funds taking place.
Last revised: 04/01/2017 Master Portfolio
Here is how I have my asset allocation broken out in percent ranges, by area. My neutral allocation weightings are cash 20%, income 30%, growth & income 35%, growth & other assets 15%. I do an Instant Xray analysis on the portfolio quarterly (sometimes monthly) and make asset weighting adjustments as I feel warranted based upon my assessment of the market, my risk tolerance, cash needs, etc. Currently, according to Morningstar Instant Xray, I am about 20% in the cash area, 25% in the income area, 35% domestic stocks area, 15% foreign stocks area & 5% in the other asset area. In addition, I have the portfolio set up in Morningstar’s Portfolio Manager by sleeve and as a whole for easy monitoring plus I use brokerage account statements along with some other Morningstar reports as well.
Cash Area (Weighting Range 15% to 25% with neutral weighting being 20%)
Demand Cash Sleeve… (Cash Distribution Accrual & Future Investment Accrual)
Investment Cash Sleeve … (Savings & Time Deposits)
Income Area (Weighting Range 25% to 35% with neutral weighting being 30%)
Fixed Income Sleeve: BAICX, CTFAX, FMTNX, GIFAX, LALDX, LBNDX, NEFZX, THIFX & TSIAX
Hybrid Income Sleeve: APIUX, CAPAX, DIFAX, FISCX, FKINX, ISFAX, JNBAX, PGBAX & PMAIX
Growth & Income Area (Weighting Range 30% to 40% with neutral being 35%)
Global Equity Sleeve: CWGIX, DEQAX & EADIX
Global Hybrid Sleeve: CAIBX, TEQIX & TIBAX
Domestic Equity Sleeve: ANCFX, FDSAX, INUTX & SVAAX
Domestic Hybrid Sleeve: ABALX, AMECX, DDIAX, FBLAX, FRINX, HWIAX & LABFX
Growth Area (Weighting Range 10% to 20% with neutral weighting being 15%)
Global Sleeve: ANWPX, SMCWX & THOAX
Large/Mid Cap Sleeve: AGTHX, BWLAX & SPECX
Small/Mid Cap Sleeve: PCVAX, PMDAX & TSVAX
Specialty & Theme Sleeve: LPEFX, PGUAX & NEWFX
Spiff Sleeve: VADAX
Total Number of Mutual Fund Positions = 48

FYI: U.S. equities fell on Wednesday as investors assessed the geopolitical landscape. The dollar hit a session low after President Donald Trump told the Wall Street Journal he thought the currency was getting "too strong."
Regards,
Ted
Bloomberg:
https://www.bloomberg.com/news/articles/2017-04-11/asia-set-for-mixed-open-as-tension-spurs-haven-bid-markets-wrap
Reuters:
http://www.reuters.com/article/us-usa-stocks-idUSKBN17E1DI
MarketWatch:
http://www.marketwatch.com/story/us-stock-futures-stay-in-holding-pattern-as-geopolitical-risks-linger-2017-04-12/print
IBD:
http://www.investors.com/market-trend/stock-market-today/stocks-broadly-lower-this-type-of-airline-is-outperforming/
CNBC:
http://www.cnbc.com/2017/04/12/us-markets.html
AP:
http://hosted.ap.org/dynamic/stories/F/FINANCIAL_MARKETS_MARKETS_RIGHT_NOW?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT
WSJ Markets At A Glance:
http://markets.wsj.com/us
SPDRs Sector Tracker:
http://www.sectorspdr.com/sectorspdr/tools/sector-tracker
SPDRs Bloomberg Sector Performance Pie Chart:
https://www.bloomberg.com/markets/sectors
Current Futures: Negative
http://finviz.com/futures.ashx

Hi Guys,
Most financial wizards recommend that some portion of our portfolios should be invested in foreign markets. The obvious question is which markets? There is no obvious answer and it is likely that the answer morphs over time anyway.
I have always liked the checkerboard presentation of returns data over time as a nice statistics summary. If patterns exist, they always escape my interpretations. Here is a Link that presents returns for various countries in that checkerboard format:
https://novelinvestor.com/international-st
Here is a Link to a more recent 2017 detailed report on international market performance as compiled by Credit Suisse:
https://publications.credit-suisse.com/tasks/render/file/?fileID=B8FDD84D-A4CD-D983-12840F52F61BA0B4
Enjoy. I hope you find these references useful when making your investment decisions.
Best Regards

'Manager execution' is different here, right?
CAPE alone has been backtested to '02, fwiw:
http://investwithanedge.com/new-barclays-shiller-cape-sector-rotation-etn
... annualized return [['02-'12]] of +10.8% (adjusting for investor fees) with 19.6% standard deviation. For the same period, the S&P 500 Total Return Index gained +7.2% with a 21.2% standard deviation.

I think counterparty risk is reduced, not eliminated, because in a bear market or some sort of crisis you'd expect the fund was losing even if it wasn't as bad as the S&P. There is no counterparty risk in that case. Of course there's still a risk because the swaps have a time period associated with them so if you're winning and there's a sudden crisis then you could still lose some money. They can manage that risk to some degree but you'd hope they've thought about it and how they'd manage that risk.
I also don't think the leverage is typical leverage risk either. Normally the really big risk with leverage is that you end up with a bigger debt than you have assets. That isn't the case here except in a situation so extreme that the fund isn't able to liquidate bonds in an orderly way to pay losses on the swaps when they expire. Considering the bonds they have, especially a decent chunk of Treasuries, and the fact that their swaps are laddered, my assessment would be that the risk related to being levered is small, not zero, but not something that would concern me.
You're right there are costs to the swaps and the management fee, but the swaps are essentially paper bets as I understand them. That means you're not dealing with a bid-ask spread and you don't have any trading costs for the equity. Considering the impact trying to buy or sell $750 million of a sector fund at the end of a month I guess the savings in this regard aren't insignificant. In addition, if you tried to mimic this yourself, assuming you wouldn't be trading enough volume to affect the market, you would almost certainly incur higher costs than the fund to create the leverage and to trade the etfs, plus whatever small expense ratio the etfs charge anyway.
I think it mostly boils down to whether you believe in the CAPE approach to the equity side and whether you believe in Gundlach (and Sherman) to manage the bond side well. CAPE isn't known for forecasting short-term movements so I wouldn't count on the equity side always being as good as it has been but I wouldn't bet against Gundlach on the bond side.

>> other than the fact it has performed well.
What else is there, ultimately? Plus the method.
I just now looked at the best LCV at M* for 3y and 5y, and graphed IFUTX and TWEIX, their winners, against DSENX since inception (3.5y ago). Outperformance. Also for every other period I could graph, short and longer, it is no contest.
Yes, past performance etc. My question would be how it would do against its category.
I am not comparing it with CGMFX or WEMMX or FRIFX.
As for mimicking, yeah, I also have looked at many bondy ways to augment CAPE and thus far come up short.
So that's the love answer, for me.

What I like about DSENX is that its stock selection is based on mathematical model instead of human selection subject to emotions and other drawbacks. The model for CAPE index was back tested for at least 15 years and it shows very good results comparing to SP500.
If I could find another mutual fund or ETF based on math. model with similar consistency and outperformance of benchmark for at least 10 years I would be happy to jump in.

OK, so what you're saying is the portfolio is both leveraged, adding to volatility, and has counterparty risk via the swaps. Look at the holdings here: https://sec.gov/Archives/edgar/data/1480207/000119312517055343/d321548dnq.htm
So the counterparties responsible for the swaps tied to the CAPE index are Barclays Capital, BNP Paribas, and Bank of America. Anything goes wrong with them and there's a problem. Additionally the swaps cost between 0.43% to 0.47% of the swap's value to put on, adding to fees. So there is added risk and cost and I still don't think this would be that hard to replicate with a small options position to add a little bit of leverage. Now you could say the leverage isn't bad in the fund as it is bonds on top of stocks and those two asset classes aren't highly correlated normally. The only problem is there are circumstances when those asset classes are correlated such as in a rising interest rate or highly inflationary environment causing both bonds and stocks to fall. I would say that environment or a credit crisis where Barclays, BNP or Bank of America get into trouble could expose the added risks here.

I'm not really sure why everyone loves this fund so much other than the fact it has performed well. Maybe that's enough for those extrapolating into the future, but believing the past is prelude often doesn't end well. For instance the idea that by avoiding the pricier parts of the market you'll do better in a bear market is actually not always the case. It depends on what type of bear market you're in. Value funds fared very poorly in 2008's credit crisis but fared very well in 2000-2002's valuation driven bear market. I hardly see why this formulaic fund that buys ETFs automatically based on their CAPE ratios with a small momentum overlay is worth an 0.89% expense ratio. Other than past performance, what makes it so great to investors buying it today assuming that the past is gone and today is the first day of your investment life? Also, how hard would it be to mimic the formula yourself for less?

That is why it is good to hold a diversified portfolio with funds having different styles, and this style has been successful so far. To me this is a good fund as part of that diversified portfolio. DSEEX has an ER of 0.64% (better than the 0.89% ER you mentioned), only a $5000 minimum if held within an IRA. To me that is a very reasonable expense.

I'm not really sure why everyone loves this fund so much other than the fact it has performed well. Maybe that's enough for those extrapolating into the future, but believing the past is prelude often doesn't end well. For instance the idea that by avoiding the pricier parts of the market you'll do better in a bear market is actually not always the case. It depends on what type of bear market you're in. Value funds fared very poorly in 2008's credit crisis but fared very well in 2000-2002's valuation driven bear market. I hardly see why this formulaic fund that buys ETFs automatically based on their CAPE ratios with a small momentum overlay is worth an 0.89% expense ratio. Other than past performance, what makes it so great to investors buying it today assuming that the past is gone and today is the first day of your investment life? Also, how hard would it be to mimic the formula yourself for less?

Several people (like me) have repeatedly wondered about what can go wrong w/ DSE_X. This is hardly an answer, but today I observe that its and CAPE's decline is significantly greater than that of all of the LCV div etfs and selected LCV funds I follow: OUSA, NOBL, DVY, SCHD, TWEIX, PRBLX, etc. etc.
Otoh, its decline still was less (marginally) than SP500.
So while there remain good arguments to hold pure LCV div vehicles, anyone who follows the wide and common advice to have a high equity percentage in SP500 may be well-served by instead choosing CAPE or DSE_X.

Yes, pretty interesting given recent discussion of DSE_X; SDOG beat CAPE last year, but in this year CAPE has come back to slightly surpass.

Vangaurd has a nice interactive chart that illustrates the impact Expense Ratio (ER) fees have on "lost return".
By sliding the expected return control closer to the left (simulating a low return environment where CAPE is historically high) fees grab proportionally more of the return that the investor keeps.
I will also note that fees always have a negative impact on investor returns. What the chart fails to shown is a negative returns scenario and the additive effect ERs have on negative returns. Investors deal with negative risk while also absorbing the negative impact of fees during down markets. Mutual fund managers never have a losing year when their funds have negative years, the investor does. ER is paid regardless as to whether the investor subtract the fee from gains or adds the fee to losses.
https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-cost