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Gundlach, State Street Launch Total Return ETF

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State Street (STT) and DoubleLine Capital launched an ETF Tuesday, hoping to capitalize both on the continuing outflows from products sold by fixed-income rival PIMCO and the growth in DoubleLine’s popularity. The new fund is called the SPDR DoubleLine Total Return Tactical ETF (TOTL).

“We view this as a unique offering that pairs SPDR’s experience as an ETF pioneer with DoubleLine’s well-established investment talent,” said James Ross, executive vice president and global head of SPDR Exchange Traded Funds at State Street, in a press release. “TOTL is an option for investors who are focused on strengthening their core bond exposure through an actively managed, multi-sector strategy.”

The ETF will be managed by Jeffrey Gundlach, chief executive officer and chief investment officer of DoubleLine Capital, along with Philip Barach, DoubleLine president, and Jeffrey Sherman, portfolio manager.

“In TOTL, we will strive to maintain the fund’s portfolio investments with a shorter duration than the Barclays US Aggregate Bond Index, while seeking to generate a healthy yield,” explained Gundlach, in a statement. “That combination is key to meeting the fund’s total return objective within a discipline of strong risk management.”

DoubleLine has some $64 billion in assets under management. Its inflows were $3 billion in January, the company says. In contrast, PIMCO – which has nearly $1.7 trillion in AUM – had $11.6 billion of outflows last month.

StateStreet, which recently cut fees on 41 SPDR ETFs, is hoping to boost business after recently losing its position as the second-largest industry player. ETF.com said in mid-January that Vanguard had nearly $433 billion in assets vs. State Street’s $432 billion. (Market leader BlackRock (BLK) had some $756 billion.)

The new State Street-DoubleLine ETF will have an expense fee of 0.55% through Oct. 31, 2016. It will invest about 80% of assets in fixed-income holdings such as U.S. Treasuries, residential mortgage-backed securities (RMBS), collateralized mortgage-backed securities (CMBS) and asset-backed securities (ABS).

At least 20% of the fund is likely to be held in MBS with government guarantees or ratings of AA- or higher. Up to 20% of the fund may be invested in non-agency RMBS, CMBS and ABS, while up to 25% of it may be invested in corporate high-yield holdings or “junk bonds.”

DoubleLine’s Total Return Bond Fund (DBLTX), which has a five-star Morningstar rating, currently holds about 78% of its holdings in securitized assets vs. the category average of 29%, according to the research firm. Its government holdings account for about 6% of assets compared with the category average of 28%.

Morningstar says 24% of DBLTX’s holdings are in agency pass-through MBS, 22% in agency MBS/CMOs, 22% in non-agency RMBS, and 6% in commercial MBS.

With trailing 12-month yield of 4.62%, according to the research group, it is a popular fund with about $44 billion of assets. On a conference call late last year, Gundlach said that the fund may close to new investors in 2015. 

— Check out Gundlach: Fed Raising Interest Rates ‘Philosophically’ on ThinkAdvisor.