Last week, Morningstar announced that the DoubleLine Total Return Bond Fund was “not ratable,” repeating its assessment from the previous year. The battle between the most prominent fund rating firm and Jeffrey Gundlach, the manager of the fund, seems likely to continue for quite some time.
According to published reports,Financial Times | Including this one, which carried the title of “Morningstar: A force to be reckoned with.” the bad blood began just before the formation of DoubleLine, when Morningstar publicly sided with Gundlach’s previous employer (TCW) after he was fired. Accounts of the spat usually focus heavily on 2011, when Morningstar only gave the fund a “neutral” rating and did not award Gundlach its “manager of the year” award despite outstanding performance.
Sometime thereafter the lines of communication between the two were severed by DoubleLine, citing what it felt were errors in analysis by Morningstar. A ... continues
How do ideas flow within investment organizations? That question has fascinated me for years.
There has been relatively little research done on the topic. Yet, understanding how ideas migrate at asset managers, advisory firms, institutional investors, research firms, etc. is critical in evaluating their prospects for success. Having worked with each of those kinds of entities on organizational improvement, I know the importance of the effective communication of ideas — and the difficulty of understanding how it really happens.
Those trying to make judgments from outside face a tougher task. What evidence is available to you? What inferences can you make?
For an example, see the first draft of a working paper by Gjergji Cici, Stefan Jaspersen, and Alexander Kempf. It is titled “Speed of Information Diffusion within Fund Families.”SSRN | The version I read was posted in February 2015. As of this writing, the authors are receiving feedback on it and will be refining it going forward. ... continues
To help investment organizations improve, I assist them in finding and closing gaps of various kinds — in how they are structured, how they make decisions, and how they communicate with others. The gaps can be subtle, but many of them are readily apparent if you look carefully. Some are even immediately obvious.
Any organization has gaps between what it says it does and what it actually does. Some are mere cracks, small and relatively unimportant, while others are veritable canyons, destined to cause major problems over time.
To take one area, consider the investment process of an asset manager. There is the marketing version of process and the actual process. The former is nicely summarized with some neat graphics and polished paragraphs. The latter is a product of the real world — of changing markets and organizations made of people. The two are not the same. (Consistent and repeatable? Hah!the research puzzle | This is a posting of mine about that phrase. ... continues
Many elements of investment practice were born out of what we call “academic research.” For instance, such widely used concepts as modern portfolio theory and the Sharpe ratio.the research puzzle | Many of the ideas get extended beyond where their authors intended them to go. The Sharpe ratio is a case in point. “Active share” is a more contemporary case study, having gone from a little-discussed conceptthe research puzzle | This is the essay I wrote about it in 2010. to a hotly debated one.InvestmentNews | Here is an article about that change.
Among practitioners and journalists, more and more attention is being paid to the flow of working papers coming from professors. A good recent example is “Picking Winners? Investment Consultants’ Recommendations of Fund Managers,” by Tim Jenkinson, Howard Jones, and Jose Vicente Martinez.SSRN | At the time of this writing, the paper is identified as slated to be published in the Journal of ... continues
Last week, I posed this question on Twitter: “I’m in the midst of doing some independent reviews of asset managers (where I have full access); what would you look for at yours?”Twitter | Most of my tweeting involves providing links to interesting reading from around the investment ecosystem.
There were a few responses, including ones about the need to understand the interplay of narrative and events, and the worth (or lack thereof) of onsite due diligence. Then, a person who tweets under the name Unrelated Nonsense replied by saying, “Look in the fridge.”Twitter | Here is that response.
I got a chuckle out of that. I assume that others who have witnessed the surprises and mysteries inside refrigerators in the kitchens of organizations did too. But, in addition to being funny, the tweet served as a metaphor for the craft of due diligence: you need to seek out that which is hidden. No one is going to show you the inside of the refrigerator, and ... continues