Advisors Fueling Growth in DoubleLine's $1 Billion ETF
Advisors usually aren’t in a rush to invest client assets in new actively managed funds. But that hasn’t been the case with vaunted bond-fund manager Jeffrey Gundlach’s first foray into ETFs. In fact, FAs seem to be swarming to his wide-ranging actively managed fund in record numbers.
Since its debut late in February, the SPDR DoubleLine Total Return Tactical ETF (TOTL) has attracted more than $1.1 billion in assets. This makes it one of the most successful launches of an actively managed ETF, according to data compiled by FactSet Research Systems.
Interestingly, analysts say that TOTL’s growth is also unusual in that it’s not being driven by mom-and-pop investors. This is the sort of “retail” fund crowd that normally can be expected to flock to well-known fund managers. It happened in 2012 when Bill Gross — who has since moved to Janus — brought to market the $2.6 billion Pimco Total Return ETF (BOND).
The rapid takeoff by Gundlach’s ETF, however, is being spurred largely by an influx of advisors and other institutional investors. The sponsor of DoubleLine’s ETF, State Street Global Advisors, estimates that roughly 80% of TOTL’s inflow so far has come from advisors at wirehouses and RIAs.
So what’s behind such a large influx of interest among FAs? For sure, Gundlach’s long-term track record of success running similar fixed-income strategies for institutions and retail mutual funds deserves much of the credit. But timing can also play a major role in how well a new ETF does — particularly in a $21.8 billion actively managed field dominated by seasoned fixed-income managers.
The recent uptick in bond-market volatility this year seems to have given TOTL a boost, observes Dave Mazza, SSGA’s head of ETF research. “The interest by advisors in this new ETF is emblematic of their concern over the Fed’s timing in raising interest rates and global growth issues — everyone’s bracing for more volatility in fixed-income markets,” he says.
The Gundlach-led ETF is attractive as something geared to provide a bit more in yield without exposing clients to longer durations, says Justin Renaudin, a portfolio specialist with San Francisco-based Cypress Wealth Advisors. The independent RIA, which manages about $1.3 billion, started building positions in the ETF about three months ago.
According to State Street, TOTL has a 30-day SEC yield of 3.2% and duration of 4.3 years. By comparison, Morningstar lists the index-tracking Vanguard Total Bond ETF (BND) with a yield of about 2.2% and a higher duration — i.e., a greater sensitivity to interest rate movements — of 5.7 years.
Another reason why Renaudin likes TOTL is its ease of use. Unlike mutual funds, ETFs can trade throughout the day and are bought and sold on major exchanges, not directly through fund companies.
“With so many questions these days about potential liquidity problems that could arise in fixed-income markets once interest rates start rising, we see the combination of an actively managed fund from DoubleLine in an ETF wrapper as a very attractive investment for our clients,” he says.
But caveats do exist. For one, the ETF isn’t being offered yet on some large investment platforms that many advisors use to build their portfolios through. For example, Mayflower Advisors’ managing partner Lawrence Glazer considers himself a big fan of Gundlach. But his Boston-based firm, which manages about $2 billion, clears through Wells Fargo. While DoubleLine mutual funds are offered through the bank, he notes that its ETF isn’t.
Glazer has moved the ETF high up on his watch list, but he sees any lack of distribution girth in the advisory marketplace as a sign there’s no need for clients to rush into such a new product.
“Even coming from such a well-respected fund manager, any new actively managed ETF needs proper vetting,” Glazer says. “So we’re not pushing to find different platforms to buy TOTL. We’ll take our time and wait until it becomes more widely distributed.”
Advisor Michael Fabian of FMD Capital in Irvine, Calif., is also an admirer of DoubleLine’s family of mutual funds. But one of the features he’s carefully scrutinizing in the new ETF is its strategy of owning bonds across several different sectors — both domestic and international — and then rotating allocations on an ongoing basis.
The danger, he warns, is that constant movement throughout a half dozen or more different parts of the market can prove costly over time. Fabian suggests that such churning of portfolios tends to raise trading costs, particularly in more illiquid sectors such as emerging markets and junk bonds.
But his start-up firm, which manages about $30 million, is dipping into TOTL for clients. Fabian says that after about seven months, he’s confident that the ETF’s managers are exhibiting the same sort of disciplined investment approach they have for years on mutual funds run in a similar fashion.
In fact, Fabian plans over the next year or two to increasingly put more of his clients’ bond allocations into the new ETF and less into DoubleLine’s mutual funds. Like others, he favors TOTL’s flexibility in trading if markets suddenly swoon, and the ability to capture Gundlach’s best picks in different areas of bonds on a regular basis.
“In a market where volatility isn’t going away anytime soon,” Fabian says, “we’re looking at this ETF as another tool to help cushion our clients against a bumpy ride.”