Gundlach’s DoubleLine Launches First ETF

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Gundlach’s DoubleLine Launches First ETF

By Alan Gula, Chief Income Analyst

Pacific Investment Management Co. (PIMCO) is facing an investor confidence crisis.

The storied bond firm experienced over $150 billion of mutual fund outflows in 2014. And PIMCO’s flagship Total Return Fund is now 54% smaller than it was at its peak in April 2013, when assets under management (AUM) reached $293 billion.

The exodus intensified after the abrupt and unceremonious departure of Co-Founder Bill Gross in September 2014.

But one firm has benefited greatly from the turmoil at PIMCO: DoubleLine Capital. Headed by Jeff Gundlach, DoubleLine saw its 13^th consecutive month of net inflows in February, following a record monthly net inflow in January.

With good reason, Gundlach is being hailed by many as the new “bond king.”

And just last week, Gundlach’s DoubleLine launched its first exchange-traded fund (ETF), which will surely intrigue fee-conscious fixed-income investors.

DoubleLine has partnered with ETF pioneer, State Street Global Advisors, to offer the SPDR DoubleLine Total Return Tactical ETF (TOTL).

DoubleLine’s lineup includes successful open-end mutual funds and closed-end funds, but this is its first ETF. The firm will actively manage TOTL, allocating capital among different fixed-income sectors using a top-down macroeconomic approach and selecting securities via bottom-up analysis.

With 114 funds, the ranks of actively managed ETFs are growing. However, with under $20 billion in aggregate AUM, it’s still a nascent area.

PIMCO’s Total Return Bond ETF (BOND) is perhaps the most popular actively managed bond ETF and has $2.5 billion in AUM.

Although bond fund investors are typically long-term oriented and don’t necessarily need intraday trading liquidity, ETFs often carry lower fees than their mutual fund counterparts.

This is the case with TOTL, which has a net annual operating expense of 0.55%.

This compares favorably to the investor share class of the DoubleLine Total Return Bond Fund (DLTNX), which carries a fee of 0.73%. The institutional shares levy a 0.48% expense ratio, but you’ll have to pony up $100,000 to meet the minimum investment requirement. DoubleLine’s Total Return Bond Fund outperformed 91% of its peers in 2014, according to Bloomberg data.

Like DoubleLine’s flagship fund, TOTL is an intermediate-term bond fund . . .  but its mandate is a bit broader. Investments can include Treasuries, mortgage-backed securities (MBS), domestic and foreign investment-grade corporate bonds, foreign government bonds including emerging markets, floating rate securities, etc.

The fund will maintain at least 20% of its assets in MBS or securities with government guarantees, whereas DLTNX aims to maintain MBS exposure of 50% or greater.

DoubleLine’s tactical ETF may invest up to 25% of its net assets in high-yield bonds.

The fund will target a lower duration (interest rate risk) than that of the benchmark Barclays U.S. Aggregate Bond Index. Therefore, a rising interest rate environment (which is not my forecast, but is possible) should have a muted impact.

DoubleLine’s first ETF, and its latest in an array of quality offerings, is an exciting development for both the firm itself and fixed-income investors looking for additional fund choices and lower fees.

At its peak, PIMCO managed over $2 trillion. At the end of 2014, DoubleLine managed a much smaller, but quickly growing, $64 billion.

Of course, performance, not size, should be used as a yardstick for greatness. And there’s no doubt in my mind that DoubleLine is already a giant in the industry.

Safe (and high-yield) investing,

Alan Gula, CFA

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By Alan Gula