DoubleLine Capital, a $134 billion investment manager headquartered in Tampa, Florida, has introduced its first ETFs with the launch of two very different actively managed strategies.
Jeffrey Gundlach (l), Founder and CEO; and Jeffrey Sherman (r), Deputy CIO, DoubleLine Capital.
The DoubleLine Shiller CAPE US Equities ETF (DCPE US) invests in US large-cap equities while harnessing Nobel Prize-winning economist Dr. Robert Shiller’s cyclically adjusted price-to-earnings ratio (CAPE) to steer the portfolio’s sector allocation.
The fund utilizes Precidian’s ‘ActiveShares’ semi-transparent ETF structure to shield portfolio holdings and prevent the risk of front-running.
The DoubleLine Opportunistic Bond ETF (DBND US), meanwhile, is fully transparent as it invests across multiple fixed income sectors worldwide. The fund seeks to outperform its global aggregate bond benchmark over a full market cycle through a largely unconstrained active approach.
Both ETFs have been listed on NYSE Arca.
DoubeLine is no stranger to the ETF arena, having for years served as sub-advisor to ETFs offered by State Street Global Advisors and AdvisorShares that collectively house billions of dollars in assets.
The new listings, however, represent the firm’s first ETFs entirely owned and managed in-house.
Shiller CAPE US Equities
The DoubleLine Shiller CAPE US Equities ETF seeks to outperform the S&P 500 while managing its portfolio to approximate the return of the Shiller Barclays CAPE US Sector Index.
The index, created by Shiller and Barclays, first determines CAPE ratios for each of the 11 GICS sectors of the S&P 500. Sector CAPE ratios are calculated by dividing the total current market value of a sector’s companies’ shares by their average, inflation-adjusted earnings over the past ten years. By aggregating earnings over ten years, the strategy seeks to dampen the effects of business cycles.
The index first selects the five sectors that are considered most undervalued according to their CAPE ratios. From this reduced pool, the index selects and equally weights the four sectors displaying the highest price momentum over the past 12 months. The output of this methodology should be an index with a value bias that aims to pick the right sectors at the right point in time. Reconstitution and rebalancing occur on a monthly basis.
While the ETF’s sector allocation and, therefore, broad risk profile are guided by the index, the fund utilizes the expertise of DoubleLine’s analysts, traders, and portfolio managers to select individual securities within those sectors in a bid to enhance performance.
Management of the ETF is headed up by Jeffrey Gundlach, Founder and CEO; and Jeffrey Sherman, Deputy CIO, DoubleLine Capital.
Sherman said: “Our 8½-year collaboration with Dr. Shiller and Barclays has helped DoubleLine’s clients navigate a challenging equity environment by applying principles gleaned from five decades of the professor’s pioneering research into market returns. Our equities ETF is a natural extension of our shared franchise, offering investors another vehicle to access this sector-rotation strategy. With the ETF’s launch, investors can allocate their core or differentiated equity exposures to this strategy while reaping the benefits of the ETF structure.”
Dr. Shiller added: “I am delighted to continue my longstanding partnership with DoubleLine. The CAPE ratio has shown its effectiveness as a long-term value metric, and I think it is as relevant as ever in today’s macro environment.”
The ETF comes with an expense ratio of 0.65%.
Opportunistic Bond
The DoubleLine Opportunistic Bond ETF seeks to maximize total return by investing in multiple sectors of the global fixed income universe.
The fund’s benchmark is the Bloomberg US Aggregate Bond Index which consists of investment-grade, US dollar-denominated, fixed-rate taxable bonds from Treasury, government-related, corporate, and securitized issuers globally.
The ETF has wide leeway to deviate from its benchmark, however, including investing in virtually any other fixed income sector and allocating up to half the fund’s assets in bonds rated below investment grade and even 5% in bonds from defaulted corporate issuers.
While the fund may also seek to position its maturity exposure according to current market conditions, it will typically maintain an effective duration between two and eight years.
Gundlach and Sherman also lead the ETF’s portfolio management team, supported by DoubleLine’s Fixed Income Asset Allocation (FIAA) Committee whose members average 23 years of investment industry experience.
The ETF incorporates both top-down and bottom-up investment approaches into portfolio construction and ongoing portfolio management.
At the top-down level, the FIAA Committee meets monthly to form a macroeconomic outlook while assessing potential opportunities and risks across the fixed income landscape. The committee informs decisions on portfolio characteristics including sector, credit, and duration exposures.
At the bottom-up level, DoubleLine investment teams dedicated to specific fixed income sectors conduct fundamental analysis and research, determine relative values, and suggest security selection. Each step in the process is aimed at finding the most-attractive reward-to-risk and relative-value opportunities.
Commenting on the launch, Gundlach said: “After four decades of debt-financed deficits throughout the developed world, fixed income markets stand on the cusp of a sovereign default disaster, an episode that will pose great challenges in risk management but also commensurate opportunities.
“Already we are seeing forerunners of the next era. These include the reversal of benign interest-rate and inflation regimes, the reordering of productive economic leadership in favour of economies outside the G-7, and, notwithstanding the recent strength of the US dollar, mounting challenges to its primacy as reserve currency.
“Broad flexibility in managing portfolio exposures – by duration, credit, sector, geography, currency, and other variables – will be the sine qua non to maximization of current income and total return. I believe the investment team at DoubleLine has the experience and expertise to successfully exploit that flexibility, a latitude afforded by the investment guidelines of the Opportunistic Bond ETF.”
The ETF’s expense ratio is 0.50%.