DBLTX Commentary – Q1 2021
Thesis
DBLTX (currently yielding 3.15%) 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 first quarter of 2021, DBLTX outperformed the benchmark (Barclays U.S. AGG) by 186bps, largely due to shorter duration positioning the fund maintained compared to the index. Securitized credit sectors such as non-Agency MBS and non-Agency CMBS were the largest contributors to overall performance. Agency MBS was the only sector that detracted from returns.
Q1 2021 Summary
- DBLTX returned -1.51%, while the U.S. AGG returned -3.37%
- Quarter-end effective duration for DBLTX was 4.92 and 6.40 for the U.S. AGG
- The top two performers were non-Agency MBS and non-Agency CMBS
- Spread tightening and interest income that offset the negative effects of rising interest rates
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 were at all time lows in 2020, but have recently been steepening which is good news for DBLTX
- 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