DoubleLine Structured Credit Portfolio Manager Ken Shinoda with guest Jeffrey Sherman, DoubleLine Deputy Chief Investment Officer, on July 12, 2023, hosts his mid-year market and macro review, named “Haters’ Ball” in homage to the hater-vexing performance of financial markets and the U.S. economy. Starting with U.S. stocks (0:36), Ken Shinoda calls equities “the ultimate in pain for the haters out there. Everyone was super negative going into the year.” The Nasdaq Composite Index (4:04) had its best first half of the year performance since 1983 after its worst H1 in history in 2022. A similar story unfolded within the S&P 500 with winning and losing sectors from 2022 exchanging roles in H12023. In fixed income (7:04), hated risky credit also defied the haters with high yield bonds, bank debt and collateralized loan obligations ranking among the top performers. Commodities (11:28), which turned in a strong performance in 2022 despite a strong dollar, were expected by many to continue producing positive returns in part on expectations of a robust re-opening of the Chinese economy. “That thesis,” Jeffrey Sherman says, got blown out of the water in the first half of this year.” Also weighing on commodities were expectations of a slowdown of the U.S. economy in the fourth quarter.
Turning to monetary policy and the economy (15:39), Mr. Sherman notes that the two-year Treasury yield reflects the market’s disbelief in the Fed’s ability to raise that rate another 50 basis points higher – or at least not for a prolonged period. Another vexation for the hate trade, Mr. Shinoda points out, is the U.S. economy. Despite a raft of market metrics and historical precedents indicating a recession should have taken hold, the economy remained resilient in 1H2023. Messrs. Shinoda and Sherman (24:01) discuss the historical data on yield curve inversions as forerunners of recessions. While inversions have reliably forecasted recessions, Ken Shinoda notes that the depth of past inversions has not correlated with recession severity. They review other recession indicators, including the Leading Economic Index, which has been at recessionary levels for some time. They warn against using equity and credit selloffs to time the onset of recessions. Risk assets historically have sold off ahead of recessions, but with too little to lead time to be of practical use. One metric Ken Shinoda thinks might tip off a fast-approaching recession is household accumulated excess savings (39:43). Deutsch Bank’s Jim Reid forecasts that excess savings will dry up in 2024.
Mr. Shinoda joined DoubleLine at inception in 2009. He is Chairman of the Structured Products Committee and oversees the non-Agency RMBS team specializing in investing in non-Agency mortgage-backed securities, residential whole loans and other mortgage-related opportunities. Mr. Shinoda is co-Portfolio Manager on the Total Return, Opportunistic Income, Income, Opportunistic MBS and Strategic MBS strategies. He is also lead Portfolio Manager overseeing the Mortgage Opportunities private funds. Mr. Shinoda is also a permanent member of the Fixed Income Asset Allocation Committee, as well as, participating in the Global Asset Allocation Committee. In addition, he hosts DoubleLine’s “Channel 11 News” (Twitter @DLineChannel11, dline11@doubleline.com), a webcast series that provides market insights and commentary with peers and industry experts. Prior to DoubleLine, Mr. Shinoda was Vice President at TCW where he worked in portfolio management and trading. He holds a B.S. in Business Administration from the University of Southern California and is a CFA® charterholder.
Jeffrey Sherman, DoubleLine’s Deputy Chief Investment Officer, is a thought leader, portfolio manager and public speaker in the industry. Mr. Sherman is a member of DoubleLine’s Fixed Income and Global Asset Allocation committees, and he serves as lead portfolio manager for the firm’s multi-sector and derivative-based strategies. In his role, Mr. Sherman guides the investment teams in developing top-down macro views and collaborative asset allocation processes throughout a market cycle. Additionally, he is a member of DoubleLine’s Executive Management Committee. In 2018, Money Management Executive named Mr. Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW, where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. Prior to that, he was a statistics and mathematics instructor at the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the USC/CFALA CFA® Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
