DBLTX Commentary – Q3 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 third quarter of 2020, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 40bps, largely due to asset allocation within the securitized credit sectors. Non-Agency RMBS was the largest contributor to returns, while non-agency CMBS also helped performance as rent collections stabilized. CLOs and asset-backed securities also contributed positively to returns, yet Agency MBS slightly detracted from the fund’s overall performance.
Q3 2020 Summary
- DBLTX returned 1.02%, while the U.S. AGG returned 0.62%
- Quarter-end effective duration for DBLTX was 3.33 and 6.1 for the U.S. AGG
- The top two performers were non-Agency RMBS and non-Agency CMBS
- Agency MBS securities produced negative returns due to high levels of prepayment rates which caused spreads to widen
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 we expect the yield curve to steepen at some point in the future
- 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