DoubleLine Portfolio Manager Eric Dhall and Asset Allocation Strategist Ryan Kimmel propose valuation and equal-weight strategies offered by DoubleLine for investment in U.S. equities and to complement investors’ exposure to the S&P 500, the latter feature explored in light of the large-cap the nearly 40% of weighting of the widely followed benchmark’s market cap to the information technology sector and more than 40% to its 10 largest-cap companies. “Market concentration alone does not necessarily signal an impending correction,” the authors write, acknowledging many market leading companies enjoy strong fundamentals. Investors, however, should consider complementary investment strategies to lessen their equity allocation’s bet “on the continued outperformance of a few select companies and one sector. The winners of the past are not always the winners of the future, particularly when the winners are trading at material valuation premiums.” Messrs. Dhall and Kimmel recommend investors consider two equity investment strategies, either apart or together, that depart from passive replication of market-capitalization-weighted indexes such as the S&P 500. DoubleLine offers equity investment strategies that implement the Shiller Barclays CAPE® U.S. Sector Total Return Index (CAPE®). CAPE® systematically allocates to relatively inexpensive sectors with positive momentum, reallocating and/or rebalancing on a monthly basis. In contrast to the sector-level valuation approach of the CAPE®, the DoubleLine also offers a strategy that implements the Barclays Fortune 500 Equal Weighted Total Return Index (Barclays Fortune 500). The Barclays Fortune 500selects individual stocks at the company level, equally weighting companies in the Fortune 500 universe, a selection set based on revenue, not market capitalization. “Strategies based on CAPE®, the Barclays Fortune 500 or both are not replacements for cap-weighted exposure; they are strategic complements,” DoubleLine’s Dhall and Kimmel write. CAPE® diversifies valuation risk; Barclays Fortune 500 diversifies single-company concentration risk.”
Mr. Dhall joined DoubleLine in 2013. He is a Portfolio Manager on the Macro Asset Allocation team, where he works with portfolio management performing analysis and trading for derivatives-based and multi-asset strategies. His research and analysis has contributed to the team’s development of DoubleLine’s smart-beta suite of strategies. Mr. Dhall also co-hosts DoubleLine’s weekly “Minutes” podcast (X @DLineMinutes, Minutes@Doubleline.com). Prior to DoubleLine, he worked at Capital Group, performing quantitative analysis in fixed income. Prior to Capital Group, Mr. Dhall was an instructor in finance at the UCLA Anderson School of Management and a research instructor at the UCLA Samueli School of Engineering. Prior to that, he worked in International Finance at Gulf Machinery Co. Mr. Dhall holds a B.S. in Physics with a secondary emphasis in Business from the University of California, Berkeley, and an M.S. in Financial Engineering from the UCLA Anderson School of Management.
Mr. Kimmel joined DoubleLine in 2013. He is a Strategist on the Macro Asset Allocation team, the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on our Global Asset Allocation Committee. Mr. Kimmel also co-hosts DoubleLine’s weekly “Minutes” podcast (X @DLineMinutes, Minutes@Doubleline.com). Prior to DoubleLine, he was a Proprietary Trader at Gelber Group. Prior to that, he was an Investment Banking Analyst at Morgan Stanley. Mr. Kimmel holds a B.A. in Business Economics from the University of California, Los Angeles (UCLA), and an MBA from the Anderson School of Management at UCLA.
