ETF Trends
ETF Trends

The recently launched bond exchange traded that tracks bond guru Jeff Gundlach’s investment strategy could allow investors to capture potential opportunities in a changing fixed-income landscape.

On the recent webcast, Fine-Tuning Your Fixed Income Strategy, Jeffrey J. Sherman, portfolio manager at DoubleLine Capital, believes that an actively managed fixed-income fund, such as the newly launched SPDR DoubleLine Total Return Tactical ETF (NYSEArca: TOTL), provides a methodical combination of traditional rate sensitive sectors with non-traditional credit sensitive areas to generate returns and diminish risk.

Sherman argues that the active approach allows managers to weave in an out of the fixed-income market to optimize returns. An active team can shift allocations, reduce or increase duration and adjust risk exposure in response to changes in the fixed-income outlook. [Inside the New Gundlach, State Street Bond ETF]

“Mispricings of bonds do occur and can potentially generate alpha,” Sherman said. “Active risk-portfolio management is crucial, and DoubleLine believes that especially in times of heightened uncertainty.”

Specifically, Sherman pointed out that a core bond indexing strategy presents challenges in a low-yield environment since the U.S. Treasuries heavy core-bond strategy would have seen yields diminish considerably and duration lengthen. Consequently, investors are now exposed to the lowest yield-to-duration ratio since the inception of the Barclays U.S. Aggregate Index.

While DoubleLine’s strategy may be associated with Jeff Gundlach, Sherman also noted that the investment thesis is backed by a large portfolio management team that implements a thorough vetting process in selecting component holdings. [Gundlach, State Street Bond ETF Goes Live]

Todd W. Lawson, relationship manager, national accounts at DoubleLine Capital, and David Mazza, vice president and head of research at SPDR ETFs and SSgA Funds, both mention how the new actively managed SPDR DoubleLine Total Return Tactical ETF includes difficult-to-access fixed-income assets and currently show a shorter duration than benchmark fixed-income indices for better risk management. The ETF seeks to enhance returns by exploiting inefficiencies within fixed-income sub-sectors while maintaining active risk management constraints.

Mazza argues that the core fixed-income index has become stagnant, with its heavy emphasis on U.S. government debt, but through an active approach, investors are able to gain exposure to areas of the marketplace that could help generate more attractive returns. TOTL currently includes a bias toward mortgage-backed securities at 37.3%, followed by industrials 20.4%, Treasuries 10.6%, finance 4.7%, emerging markets 4.7%, services/retail 2.8%, CMBS 2.7%, media 1.9% and healthcare 1.9%. Sector weights are based on the DoubleLine team’s economic outlook, fundamentals and relative value.

The ETF has a 3.06-year modified duration and a current yield of 4.39%.

Financial advisors who are interested in learning more about the fixed-income strategy can listen to the webcast here on demand.