Jeffrey Gundlach gets all the publicity, but he isn't the only manager of a five-star bond fund who left The TCW Group Inc.
Luz M. Padilla, former manager of the five-star TCW Emerging Markets Income Fund (TGEIX), followed the more-well-known Mr. Gundlach to DoubleLine Capital LP, the firm he founded in early 2010.
The benefits of jumping ship, which included getting an equity stake in the newly formed company and continuing to work alongside a rising star, were too good for Ms. Padilla to pass up. But in doing so, she had to give up something that isn't easily replaced: her track record.
Track records are the property of mutual funds and their parent companies, not the portfolio managers, at least as far as marketing goes, according to the Investment Company Act of 1940.
Not having stars of her own was the biggest hurdle that Ms. Padilla faced when launching the DoubleLine Emerging Markets Fixed-Income Fund in April 2010.
NO BIG NAME, JUST A GOOD RECORD
“That was the most daunting part of it,” she said. “We didn't have the star power, so what's going to get us in the door is our performance.”
From 2006 to the end of 2009, when Ms. Padilla was the lead portfolio manager of the TCW Emerging Markets Income Fund, she established a five-star record.
A $10,000 investment made on her first day as lead portfolio manager would have grown to $13,496 on her last day. The average emerging-markets-bond fund would have seen the same investment grow to $12,026 over the same time period, according to Morningstar Inc.
Ms. Padilla attributes her success to not being tied to an index.
She recalls when a consultant asked her why she doesn't own a particular Russian bond that most other emerging-markets bond funds hold in a meaningful weight. Since Russia makes up 8% to 9% of most emerging-markets-bond indexes, most funds own that issue because it's the only one offering any significant-duration exposure to Russia at a decent premium, Ms. Padilla said.
But rather than buy the bond simply to give her fund exposure to Russia, she looks for issues that are worthwhile on their own merits.
“Emerging-markets debt started out as high-yield credits, but now it's an investment-grade category,” Ms. Padilla said. “We're looking for credits that can benefit from the improving credit story.”
Ms. Padilla's strategy hasn't changed since she has been at DoubleLine, nor has her success. Since the Emerging Markets Fixed-Income Fund's launch, it has outperformed the category average by 6%.
The fact that Ms. Padilla had experience building an emerging-markets-bond group from the ground up helped the launch go smoothly.
She joined TCW in 1994 as an intern in its emerging-markets fixed-income group, being attracted to the position because of the relative obscurity of the asset class back then, and because of a conversation she had with a fellow student at the University of California at Berkeley, where Ms. Padilla earned her MBA.
“We were talking about which area of finance we wanted to go into,” Ms. Padilla said. “We decided that we couldn't really bring anything new to the table in any of the traditional asset classes because people had been doing it for so long.
“Since emerging markets were still new,” she continued, “we thought we could become experts there and add value.”
After her internship, she worked her way up to trader, analyst and finally to co-portfolio manager of the TCW Emerging Markets Income Fund, a post she held from 2001 to 2006. She was then named managing director of the emerging-markets group.
jkephart@investmentnews.com
