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Litman Gregory Fund Taps Star Portfolios

Stocks in this article: MSILX MSVFX MSEFX

NEW YORK ( TheStreet) -- Jeffrey Gundlach's performance has been sizzling. During the past year his DoubleLine Total Return Bond (DBLTX) has returned 10.5%, outdoing the Barclays Capital Aggregate U.S. Bond Index by five percentage points and ranking as the top intermediate-term fund, according to Morningstar.

Before launching DoubleLine in 2010, Gundlach delivered top results as portfolio manager of TCW Total Return Bond (TGLMX). But investors could have done even better by investing in Gundlach's hedge fund, says Jeremy DeGroot, chief investment officer of Litman Gregory Asset Management. In the hedge fund, Gundlach outperformed by betting aggressively on lower quality securities.

Jeffrey Gundlach, DoubleLine Capital

Now investors can get exposure to Gundlach's aggressive strategy in a mutual fund. The approach is one of four that are being packaged into a new fund, Litman Gregory Masters Alternative Strategies (MASNX). To offer a compelling investment, Litman Gregory has recruited a team of star managers who all run successful funds, including Steven Romick, portfolio manager of FPA Crescent (FPACX), John Orrico, portfolio manager of Arbitrage (ARBFX), and Matt Eagan, co-manager of Loomis Sayles Bond (LSBDX).

Why buy the Litman Gregory alternative offering instead of the managers' flagship funds? DeGroot says that the managers all provide Litman Gregory with special approaches that have not been offered before in mutual funds.

The new alternative fund is the latest in a series from Litman Gregory that rely on best-of-breed managers. Most of the offerings have delivered competitive returns. Funds that have outdone their category averages during the past decade include Masters' Select International (MSILX), Masters' Select Value (MSVFX) and Masters' Select Equity (MSEFX).

For the new alternative fund, Litman Gregory has recruited stock and bond managers that follow different disciplines. The goal is to assemble a diversified portfolio that could prove resilient under a variety of market conditions. The Litman Gregory alternative fund will be benchmarked against a portfolio that is 40% in stocks and 60% in bonds. "The aim is to perform better than a 40-60 portfolio while recording less volatility," says DeGroot.

Meet the Managers

In recent years, many companies have introduced alternative funds. These sell short or use other approaches that can prosper in an era of erratic stock markets. While there is a clear need for funds that can excel in down markets, DeGroot said that many of the new funds have inexperienced managers and high fees. To offer a better solution, Litman Gregory sought managers with long track records. The new fund's institutional class shares have an expense ratio of 1.49%, which is lower than the average figure for alternative funds and a fraction of what hedge funds charge.

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