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Southern California Bond Managers: Big Smoke, Small Fire

Much personal drama, not much investment disparity.

John Rekenthaler, 09/22/2017

Making the Headlines
They don't operate quietly in the City of Angels. Back in the day, Mike Milken rivalled Fidelity Magellan's Peter Lynch as the most famous investment personality of the late 1980s. (Although, to be sure, not the most popular.)

Twenty years later, Jeffrey Gundlach and his former employer TCW became embroiled in one of the loudest, most-acrimonious portfolio manager breakups in fund-industry history--only to be matched, and perhaps exceeded, by Bill Gross' resignation from PIMCO five years later.

That is a whole lot of "mosts" for one place.

Milken's headlines didn't lead to investment decisions: When he left Drexel it was to serve prison time, and his funds were en route to extinction. But the exits of Gundlach and Gross certainly did. When Gundlach left TCW, many articles were written about whether shareholders should follow him, or stay where they were. Gross' move generated even more concern, with PIMCO Total Return PTTRX shedding half its assets since his departure.

Behaving Modestly
Overall, the investment results haven't warranted the commotion.

To be sure, DoubleLine Total Return Bond DBLTX roared out of the gate. During its first three years (as measured from its first full month, starting May 1, 2010), the fund earned an annualized 11.15%, a breathtaking result for a high-grade bond fund in this era of low interest rates. The relevance for shareholders was somewhat lessened by TCW Total Return Bond's TGLMX success, as that fund also performed very well at 8.75%. Still, those who jumped TCW's ship for Gundlach gained an extra 240 basis points per year for their effort, which made the journey well worth taking.

In the years since, though, the performance gap between the DoubleLine and TCW funds has narrowed, with the former outpacing the latter by around 0.35% per year. And with the second case, the question of whether to follow Bill Gross to Janus Henderson Global Unconstrained Bond JUCIX, the results never have diverged greatly. To be sure, the funds have not behaved identically; real dollars have been won (or forgone) because of decisions to stay or go. However, it's hard to argue that the differences have justified the amount of spilled ink.

(Including, it must be confessed, ink spilled in this column, which addressed the PIMCO/Gross situation on two occasions.)

is vice president of research for Morningstar.

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