Fund Analysis

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TCW Total Return Bond I TGLMX

Morningstar's Take | 12-26-2002
Kudos

by Eric Jacobson

Excellent long-term record. Experienced management with a strong institutional reputation.

Risks

Neither fish nor fowl, TCW Galileo Total Return Bond still swims as though born in water. This fund's split personality isn't immediately apparent. At its core, this is a mortgage portfolio. Yet, manager Jeffrey Gundlach's mandate is to stay competitive both with plain-Jane Ginnie Mae funds as well as the more aggressive universe of core intermediate-term bond funds. As such, the fund keeps its interest-rate sensitivity two thirds of the way between the (shorter) Lehman Brothers Mortgage Backed Securities Index and the Lehman Brothers Aggregate Index. Moreover, Gundlach believes that despite its girth, the mortgage market harbors much inefficiency ripe for exploitation. As such, this fund is chock-full of mortgages that aren't in the conventional indexes. Analysis and selection of those issues is this fund's stockin-trade. Gundlach holds 27% in CMOs but is particular about which slices he buys, shunning PAC bonds many rivals covet for their reputed stability. Rather, Gundlach tends to focus on either simple structures or some of the riskier looking pieces such as inverse floaters (recently 6%), depending on what looks cheap. Over the past year, he has also dabbled in adjustable-rate mortgages (16%) and private issue CMOs (14%), each of which offers structures he likes. Those selections have kept the fund from behaving unpredictably during bad interest-rate markets and have allowed it to get the most out of rallies that leave other mortgage funds trailing. Despite falling rates in 2002, for example, the fund has rallied hard with a 10.7% return through Dec. 24 that places it near the top of the intermediate-term bond category. Its extended return record is equally stellar, while its volatility has been moderate. We'd shy away from this fund's N shares, which carry a 1% expense ratio, but TCW has built a solid reputation as a mortgage manager, and the fund's I shares are otherwise a great way to access that expertise.

Doesn't offer as much sector diversification as most intermediate-term bond funds. Though management has done a great job at keeping them in check, this fund does take on some risks with unusual securities such as inverse floaters. There's currently no low-expense, low-minimum share class to select.

Strategy

Management keeps this fund's duration around two thirds of the way between the (shorter) Lehman Brothers Mortgage Backed Securities Index and the Lehman Brothers Aggregate Bond Index, which is the benchmark for most core bond funds. That design is intended to help keep the fund competitive with both basic government mortgage funds and intermediate-term bond portfolios. In that pursuit, the fund buys lots of off-index sectors such as CMOs, private-label CMOs, ARMs, and inverse floaters.
Management

Role in Portfolio

Core

Jeffrey Gundlach has primary responsibility for this portfolio and has been managing it since its 1993 inception. He has been with TCW since 1985. He's supported by TCW chief-investment officer Philip Barach and mortgage-backed securities specialist Frederick Horton.

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11/16/2011 12:40 PM