Grail Partners With DoubleLine: Match Made In ETF Heaven?

by on June 25, 2010

Grail Advisors, the San Francisco-based firm that burst onto the scene last year with the launch of the first true actively-managed equity ETF, just scored a major victory. The company announced this week that it has formed a strategic partnership with DoubleLine Capital LP, the firm founded last year by legendary investor Jeffrey Gundlach and his long-time colleague Philip Barach. Grail has filed registration for the Grail DoubleLine Emerging Markets Fixed Income ETF, a fund that will employ DoubleLine’s management capabilities in the emerging markets sector. “This new relationship represents great potential for the Grail Advisors actively-managed ETF lineup and for the ETF marketplace in general,” said William M. Thomas, CEO of Grail Advisors LLC. “The partnership will give us access to the skill and experience of the DoubleLine team in an important asset class.”

Match Made In ETF Heaven?

The Grail/DoubleLine marriage could give the active ETF industry a much-needed shot in the arm, introducing the first  superstar manager to a space that has so far been slow to gain traction. Although many of the asset managers behind existing active ETFs have impressive track records, Gundlach is in a class by himself, with an investing history perhaps rivaled only by PIMCO boss Bill Gross [see Three Potential Active ETF Gamechangers].

In late 2009 Gundlach was named as a finalist for Morningstar’s bond fund manager of the decade. Shortly after receiving the nomination, he was forced out of TCW, the Los Angeles money management firm where he had worked for nearly a quarter of a century. TCW acquired an entire firm, rival Metropolitan West Asset Management, to replace Gundlach, who promptly started up DoubleLine and ultimately took about three-quarters of his staff along with him.

Gundlach’s performance has been impressive; his flagship $12 billion TCW Total Return Bond Fund returned about 8% annually for the past decade, beating about 99% of its competitors (including PIMCO’s Gross). By the time he left TCW, Gundlach was managing about 70% of the firm’s assets, making him responsible for one of the biggest pots of money in the world. Since his departure, TCW has seen assets sink by about $25 billion.

Grail currently offers seven actively-managed ETFs, including five equity funds, a taxable bond ETF, and a municipal bond ETF. Grail’s experience in the active ETF space (as well as its exemptive relief) will allow Gundlach and his team to offer their fixed income expertise in an ETF wrapper for the first time. “DoubleLine was founded with the fundamental objective of delivering competitive risk-adjusted fixed income returns to the client,” said Gundlach. “We’re pleased to be working toward client-tailored solutions with Grail Advisors.”

First Up: Emerging Markets

Some have pointed to the impressive rise of the ETF industry as clear evidence of a shift in preferences towards passive indexing strategies. While the benefits of stock picking in highly efficient markets is a fiercely-debated topic, many investors and scholars agree that active management may be beneficial in asset classes where liquidity and transparency are perhaps the exception rather than the rule. So the choice to focus initially on an emerging markets bond ETF seems logical; many investors feel more comfortable with an experienced expert in corner of the investable universe that can be very tricky to navigate [see all ETFs in the Emerging Markets Bonds ETFdb Category].

For more on Gundlach’s track record, see this fascinating article. For more updates on the ETF industry, including the changing active ETF landscape, sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.