DBLTX Commentary – Q2 2020
Thesis
DBLTX utilizes a top down-bottom up process that focuses on MBS and Agency bonds. When compared to the benchmark (Barclays U.S. AGG), the holdings have lower duration and exposure to corporate bonds, reducing their sensitivity to interest rate movements and credit spreads. We expect attractive risk-adjusted return characteristics over the long term from DBLTX, especially during periods when corporate bonds’ spread increase and the yield curve steepens.
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Overview
In the second quarter of 2020, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 51bps, largely due to asset allocation – the fund maintained a large exposure to credit assets. After the sharp drop in March, securitized credit sectors continued to recover. Price declines and selling pressure in this sector during the first quarter resulted in wider spreads, which led to an attractively priced vehicle for investors to rally behind during the second quarter. Improvements in liquidity and investor sentiment also helped bolster non-Agency RMBS performance. Lastly, the Fed’s stimulus packages helped performance through the second quarter.
Q2 2020 Summary
– DBLTX returned 3.41%, while the U.S. AGG returned 2.90%
– Quarter-end effective duration for DBLTX was 3.18 and 6.04 for the U.S. AGG
– The top two performers were non-Agency RMBS and Agency RMBS assets
o All sectors allocated positively to the fund’s return – CLOs and ABS made the smallest contribution due to their low weighting within the fund
Outlook
– We continue to hold this fund due to the approach and strong diversification factor within our core bond holdings – yet we are looking further into the holding as the year-to-date volatility and underperformance has made us reassess the approach
– DBLTX is a good position to hold due to its low duration which outperforms during periods of rising rates – Treasury yields are at an all time low and have a high possibility of steepening
– Historically, DBLTX has displayed stronger returns and lower volatility than the index
– DBLTX has had consistent strategy, allocation focus, and sector distribution
[Category Mutual Fund Commentary]
Micah Weinstein
Research Analyst
Direct: 617.226.0032
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109