Even Bond Kings Can't Be Late to a Party: Lisa Abramowiczby
It’s good to be the king, but it takes some agility to stay that way.
Jeffrey Gundlach, the star debt-fund manager who has arguably seized the title from Bill Gross, is finding he can’t rest as exchange-traded fund fever sweeps over the bond-investment world.
He is racing to cement a toehold in this exploding industry, with his DoubleLine Capital planning two more debt ETFs with State Street after starting its first in February. He has reason to feel confident. DoubleLine raised more than $1 billion for its Total Return ETF in just months. It will probably have no trouble attracting a crowd for the funds that are in the works, SPDR DoubleLine Emerging Markets Fixed Income and Short Term Total Return Tactical, according to regulatory filings this month.
Truth be told, Gundlach is already a little late. ETFs, with shares that trade like stocks, are incredibly appealing to a growing number of investors. They seem easier to use and quicker to buy.
Investors keep piling into the first DoubleLine ETF, which is co-managed by Gundlach, Philip Barach and Jeffrey Sherman, and a lot of them probably wouldn’t be investing in his or any other mutual funds. So even though Gundlach has had absolutely no problem raising money for his main bond mutual fund, which just hit $50 billion in assets in record time, he can’t ignore this slice of fund management that is rising meteorically, and with fresh money to boot.
After all, these funds are padding the pockets of DoubleLine’s rivals. BlackRock, which created the first such fund more than a decade ago, just reported better-than-expected earnings in large part because of the flood of cash that keeps pouring into its ETFs. And Pimco has amassed $2.6 billion in its Total Return debt ETF, which follows a similar strategy as its flagship mutual fund but hasn’t experienced the same continuing outflows in the wake of Gross’s departure last year.
While Gundlach may be playing a little catch-up, it’s understandable. The funds are probably the wave of the future when it comes to indexed-fund management, but drawbacks exist for active fund managers, such as having to report daily on specific holdings and fund flows, which can give others valuable clues to the secret investing ingredients. And individual investors have come to expect lower fees on ETFs compared with those for mutual funds.
There are drawbacks for investors, too. Sometimes they’re better off investing in mutual funds rather than the ETF versions of those strategies, regardless of the fees. DoubleLine’s first ETF, for example, has underperformed its Total Return Fund by almost a percentage point since the end of February. (To be fair, the two funds follow somewhat different strategies, and both have outperformed broad bond-market benchmarks.)
The enthusiasm for ETFs isn’t going away, though, and smart kings know it’s critical to master the latest challenges lest a more nimble upstart sweep the empire out from under them.
(This column does not necessarily reflect the opinion of
Bloomberg LP and its owners.)