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Gundlach on TCW Total Return's Liquidity

Jason Stipp

Jason Stipp: I'm Jason Stipp with Morningstar. Jeffrey Gundlach, former CIO and former manager of TCW Total Return Bond announced on Monday the formation of a new firm, Double Line, with several of his former TCW colleagues. This in the wake of a shake-up at TCW through which that asset manager brought in Metropolitan West and took over Jeffrey's duties there at [TCW]. Joining me today is Jeffrey Gundlach to talk about his new venture. Thanks so much for joining me, Jeffrey.

Jeffrey Gundlach: Great Jason. Glad to be here.

Stipp: So first question for you would be about your old fund. There were some reports that we read in the Wall Street Journal that were questioning the liquidity of the fund and we just wanted to ask you is the liquidity of that fund an issue for investors that would intend to stay in that fund or those who would want to leave that fund? Do you see that as being a problem that's been raised in the press?

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Gundlach: Well any comments I make on TGLMX would have to relative to where it was when I left it. And I'm certainly willing to talk about that because I don't have any knowledge of what's happened to the construction of the fund since I was liberated from TCW. The fund was at $12 billion of AUM on Dec. 4th. A little over $12 billion actually. And I know that several billion dollars were redeemed during the last week. That means that the fund has had something like 30%--I've seen those numbers in the press--that has redeemed.

It's not clear to me that the fund was redeemed pro rata, but when I left the fund, it was two-thirds cash plus agency guaranteed mortgages and one-third non-guaranteed mortgages.

And I did see statements from TCW that the new management team was intending to imitate my style, which sounds to me--although I don't know--that would mean that they would have sold down the fund pro rata.

I did hear that there was sales of over $450 millions of the non-agencies in the first part of last week and I did hear--and you can see it in the NAV of the fund, the way it performed day-to-day, that the performance of the fund since Dec. 4, doesn't seem to be terribly out of line with the category.

So what that suggests is that so far these liquidations have been pretty much a non-event and the liquidity of the fund has been ample.

When you think of a fund that has two-thirds of the investments in government guaranteed securities and cash, that's about the most liquid sector of the market, Fannie Maes, Ginnie Maes and Freddie Macs are pretty much the same liquidity as Treasuries, plus a very, very, very small increment.

I always like to tell people that agency mortgages on their very, very worst day are probably more liquid than single-A corporate bonds on their very, very best day. So the fund with that kind of construct has ample liquidity plus the agency lists that were sold last week I was told, traded actually above where they are being carried on the books for whatever reason.

And you know, there is various ways to think about it. Maybe the market's up? Maybe people figured that Gundlach's team bought the bonds and they know we analyze them very, very thoroughly. And so in a certain sense they probably had a seal of approval on them by a very well-regarded and deep team.

But I still own TGLMX. I probably won't too much longer because I don't know what's going to happen with the strategy. I've already, observing the market, have changes I would be making to the portfolio and all the portfolios that I manage.

But obviously those ideas won't be integrated into the mesh of the portfolio unless the board of directors assigned to the portfolio to my firm, which I'm perfectly willing to do or to allow to happen. Because after all, I know the investors signed up for my team's deliverable, and it's pretty clear that that deliverable is not going to be available, although we have every intention of making the deliverable available to clients in the very near term through mutual funds as well as other vehicles.

That's all pending SEC approval of our registration, which is never a fait accompli, but it's certainly something that we're focused on accomplishing as quickly as possible.