DoubleLine is one the many established asset managers that entered the ETF market in the past year. Like Neuberger Berman, the firm launched in April 2022 one equity and one fixed income ETF: The DoubleLine Shiller CAPE U.S. Equities ETF (CAPE ) and the DoubleLine Opportunistic Bond ETF (DBND ). The firm is a sub-advisor on three bond ETFs for State Street Global Advisors, including the SPDR DoubleLine Total Return Tactical ETF (TOTL ), which manages $2.2 billion in assets.
To learn more about the team and approach behind these ETFs as well as what’s next, we spoke to Jeffrey Sherman, deputy chief investment officer of DoubleLine Capital. Sherman is a portfolio manager on CAPE and DBND as well as host with Samuel Lau of the Sherman Show Podcast.
VettaFi: DoubleLine has a long history with actively managed mutual funds but launched ETFs in early 2022. Can you share what made the team excited to offer ETFs?
Jeffrey Sherman: Yes, in April, DoubleLine established our ETF platform, the DoubleLine ETF Trust, which launched our first exchange traded funds the same month. That said, we have managed ETFs since 2015 through our partnership with State Street. We always appreciated the advantages of the ETF structure, and, of course, many clients prefer to transact within this ecosystem. So, ETFs form a natural extension for our investment offerings as we diversify our distribution vehicles to match the different preferences of our clients.
VettaFi: DoubleLine’s two ETFs are actively managed. Would you briefly tell us about the team behind these strategies?
Sherman: The DoubleLine Opportunistic Bond ETF (DBND ) is an intermediate core-plus investment solution that implements a strategy that our team has managed for over 10 years. Jeffrey Gundlach and I are the prospectus-named portfolio managers, and we lead the investment team. As with our other multisector fixed income portfolios, DBND leverages our Fixed Income Asset Allocation (FIAA) process to provide both top-down sector selection and bottom-up security selection. The FIAA members represent all the major sectors of the fixed income universe. Our senior investment team members average over 20 years working together, both at DoubleLine and at a previous firm.
The DoubleLine Shiller CAPE® U.S. Equities ETF (CAPE ) is an extension of the franchise that we have built through our mutual fund and UCITS platforms in our strategic partnership with Barclays and Professor Robert Shiller. Using a methodology that applies Dr. Robert Shiller’s CAPE® ratio to each of the 11 sectors of the S&P 500 Index, this strategy seeks to rotate into the most attractively valued sectors of the U.S. large-cap equity market.
VettaFi: Would you explain the mechanics of how CAPE puts into effect its valuation strategy?
Sherman: On a monthly basis, we identify the five of 11 sectors of the S&P 500 that are trading at attractive CAPE® ratio valuations relative to their long-term average CAPE® ratios. However, because this is a value strategy, Dr. Shiller’s methodology also incorporates a negative-momentum filter in an attempt to avoid the classic “value traps.” Of the five value sectors, the sector with the worst trailing 12-month total return is eliminated. The ETF invests in the four remaining sectors on an equal-weighted basis at 25% each. Through time, this methodology has shown investors the benefit of both sector inclusion and exclusion. It has delivered alpha versus the S&P 500.
VettaFi: What’s ahead for DoubleLine’s ETF lineup?
Sherman: When we launched our ETF franchise, we did it with a unique strategic partner, Barclays. This provides us with an experienced capital markets partner who complements our core competencies. We are discussing a handful of ideas within fixed income, and we’ll also welcome suggestions from investors. The welcome our first two exchange traded funds have received, evidenced by their asset gathering since launch, bodes well for DoubleLine’s future in the ETF space. We appreciate the continued support from our valued clients.
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