With the Federal Reserve still vexing investors, getting an assist with fixed income investments the form of a solid management team is a strategy to consider in the current environment.
For example, the SPDR DoubleLine Total Return Tactical ETF (NYSEArca: TOTL) has been a popular active bond play for ETF investors. TOTL is an actively managed ETF backed by bond guru Jeff Gundlach and is also seen as an ETF adaptation of the flagship DoubleLine Total Return Fund (DLTNX).
TOTL provides a higher yield and lower duration than the benchmark Barclays U.S. Aggregate Bond Index, with a smaller standard deviation. Additionally, the active ETF has a greatly diminished exposure to U.S. Treasuries while over-weighting agency MBS, non-agency debt, emerging market bonds, bank loans and high-yield, among others.
Bond investors who still want to hold onto fixed-income assets in a rising interest rate environment ahead may consider actively managed strategies that are able to quickly modify holdings to adjust to a changing environment.
TOTL “seeks to address the heightened interest rate and concentration risks in traditional passive fixed income exposures while providing income, diversification and stability for a core fixed income exposure,” according to a recent note from State Street Global Advisors (SSgA).
The $3.3 billion TOTL holds nearly 630 bonds and has a modified adjusted duration of 4.3 years. Duration measures a bond’s sensitivity to changes in interest rates. The average maturity of TOTL’s holdings is 6.2 years.
“Rock bottom interest rates have taken a toll on many fixed income vehicles. The yield of the Bloomberg Barclays U.S. Aggregate Bond Index (the Agg), a traditional fixed income benchmark, is 40% below its 20-year average. Meanwhile, the Agg’s duration has extended to six years—25% above its 20-year average. This is its longest duration ever based on data going back to 1989, speaking to its potential vulnerability to further rate changes,” according to SSgA.
With TOTL being a credible alternative to traditional core fixed income exposure, comparing the ETF to widely followed Bloomberg Barclays U.S. Aggregate Bond Index makes sense. Since TOTL debuted in 2015, the ETF has outpaced the Bloomberg Barclays U.S. Aggregate Bond Index while sporting a superior yield with less volatility and a lower duration.