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 13th 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.
Do NOT Deposit Another Dollar in Your Bank Account Until You Read THIS
A CIA insider has launched an urgent mission to expose the government’s secret money lockdown plan…
Once you see what could happen next time you go to an ATM, you’ll understand why he’s sending a FREE copy of his new book to any American who answers right here.
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