|LANDON THOMAS JR.|
Earlier this fall,
He was bullish on the bonds of emerging markets in
''This limitation,'' the new wording read, ''does not apply to investment-grade sovereign debt denominated in the local currency with less than one year remaining to maturity.''
By the time the added wording came into effect in October,
The change also highlights a worrisome trend among the world's largest bond funds, a number of which surpass in size the economies of major European countries. With interest rates in the major markets at record lows, many of these funds, which are popular with retirees, have loaded up on high-risk, high-return securities and, in the process, have become ever more opaque about the risks involved.
Morningstar, as a result, does not give the fund an investor rating.
''Investors need to understand the risks they are exposed to,'' said
This mix of opacity and scale is drawing scrutiny to an industry that, in contrast to its banking brethren, has not had to bear much of a regulatory burden to date.
Last month, a working group of global watchdogs, headed by
The paper cautioned that even traditionally liquid securities like United States Treasury bills — to say nothing of complex mortgages and real-denominated Brazilian bonds — are becoming harder to sell when markets tumble.
All of which increases the stakes for both
In a statement,
Since January of this year, when public accounts of a divisive leadership struggle at
To that end,
He also poked fun at the public speaking skills of the new chief investment officer,
Financial executives will often disparage their competitors anonymously, but they rarely do so publicly — more from superstition, generally, than politesse — and
That said, its 4.5 percent gain over the last year trails the 6.7 percent return in that same period registered by DoubleLine's flagship fund.
Some analysts accept that DoubleLine's fund, with its larger pile of high-yielding mortgage bonds, may be riskier than its rival, even as its exposure to these sophisticated structures has come down to 3.5 percent from 25 percent several years ago.
These securities include so-called inverse floaters, a high-risk mortgage tranche, whose interest rate moves in the opposite direction of benchmark rates and that can be difficult to sell.
''Our sense is that
Nevertheless, the drama surrounding
In particular, many hedge funds have been betting against
As the funds have zeroed in on these holdings, they have been taken aback by how large the emerging market share of the portfolio actually is.
For example, on the second page of Total Return's quarterly investment report,
In an even starker example,
For a volatile asset class, these are large allocations, surpassing by a wide margin the 2.5 percent allocation that Morningstar shows as
Just as it does with Mexican and Brazilian local currency bonds that mature in less than a year,
Of course, in today's buoyant climate, just about any investment can be described as liquid, be it a Russian credit-default swap or a high-yielding mortgage tranche. Until it's not, that is.
This is a more complete version of the story than the one that appeared in print.
PHOTO: While at the money management firm
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