The strong launch of an ETF with Jeffrey Gundlach's name behind it demonstrates there is room for more growth in actively managed ETFs, industry observers say.
Gundlach's DoubleLine Capital teamed up with State Street Global Advisors to launch its first actively managed ETF, the SPDR DoubleLine Total Return Tactical ETF.
Gundlach will co-manage the fund, which initially launched with over $120 million, according to ETF.com, and has a cost of 55 basis points.
"This is not a clone of any existing strategies," said Jeffrey Sherman, one of the DoubleLine portfolio managers on the ETF, in a webinar. "We created a new product for this offering ... that draws upon views of Gundlach and the asset allocation team."
When the fund launched Feb. 24, it would break up its investments between corporate and sovereign high-yield debt, foreign currency denominated securities, emerging markets and asset-backed securities, according to SEC filings.
The fund is the 26th ETF to be launched this year, Bloomberg reports, but it is still among the few entries in the actively managed ETF space. There are just 120 actively managed ETFs in the market with a total of $19 billion in assets, Bloomberg reports, representing less than 1% of ETF assets.
So far, the standout success of the actively managed ETF market to date has been another fund a star manager attached to it - Pimco's Total Return Bond ETF. When it launched in 2012, the fund collected $1 billion in assets within three months and at its zenith had $4 billion. Despite Bill Gross's departure to Janus, the fund's assets reside at roughly $2 billion.
Gundlach's fund may not replicate the success of Gross's ETF launch, but it can fare better because of it, says Todd Rosenbluth, director of ETF and mutual fund research at S&P Capital IQ Global Markets Intelligence.
"Till date, actively managed ETFs have gathered more assets in the fixed income area, relative to equities," he says. "So it likely has better prospects than equity-based actively managed ETFs. It can also take advantage of the beachhead that PIMCO created in this space, and is backed by reputed sponsors and fund managers."
Joining forces was a smart move on the part of DoubleLine and State Street in the active ETF offering, says Deborah Fuhr, managing partner and co-founder of ETFGI, a London-based ETF research firm.
"Gundlach's definitely a success in the fixed income markets, and in State Street he's chosen a well-established machine that has been running a family of ETFs," she says. "In this case, one plus one equals more than two."
NOT JUST GUNDLACH
After the launch, the firms talked up their combined strengths. Gundlach's mutual fund assets increased have accumulated $44 billion in less than five years, according to Bloomberg, while State Street manages the industry standard SPDR ETFs. "It's a very powerful combination," said Dave Mazza, head of ETF investment strategy at State Street Global Advisors.
At the same time, executives from DoubleLine and State Street emphasized that though the fund was benefiting from Gundlach's reputation as a star manager, there was an entire team and a larger advisory effort behind him.
"DoubleLine is more than one person, and more than one strategy," Mazza said.
But there was no reason not to acknowledge Gundlach's influence, Fuhr says, given that manager names are key to drawing investors to actively managed funds. "You're buying into that person and their capabilities," she says.
This year is important to judge whether investors fully embrace active management in an ETF wrapper, says Aniket Ullal, founder of ETF industry research firm First Bridge Data.
"This launch definitely will be a good indicator of that since it is in the fixed income space, though I don't think success for the industry hinges on one specific product's success or failure."
Rosenbluth agreed that the ETF's performance would be a yardstick for actively managed offerings.
"There are not a lot of active ETFs and little demand so far for active equity products," he says. "This success of this ETF along with Fidelity Total Bond will help the industry better understand if investors are more willing to use active ETFs."
There are factors beyond the launch of Gundlach's ETF that will support actively managed ETFS, says Rusty Vanneman, chief investment officer at Omaha, Ne.-based ETF strategy firm CLS. "Given the lower cost of the ETF structure, including lower tax costs, actively-managed ETFs will continue to grow in the years ahead."
The active ETF is likely to be followed by other launches, Ullal adds.
"Right now actively managed bond ETFs make up less than 3% of total U.S. ETP listings by number, so this space is still relatively new territory, especially compared to the indexed space."