NYSE Active ETF Updates

JPST Transfer & Q&A with DoubleLine

This week we sit down with Scott Thomson at DoubleLine Capital to discuss their recent entry into the active ETF market.

DoubleLine has a long-standing track record as an active asset manager, launching its first investment strategy in 2009. The firm entered the ETF space through a sub-advisory relationship with State Street for NYSE-listed ETF TOTL, which was a powerful draw of investment flows immediately after its launch in February 2015, and added two more ETFs with State Street, STOT and EMTL, in 2016.

What led to the decision to expand to a standalone active ETF lineup in early 2022?

The launch of DoubleLine’s standalone active ETF business reflects our dedication to serving our clients and matching their investment preferences. Mutual funds will always have an important place in the distribution of investment strategies to investors, particularly for actively managed strategies. That said, as evidenced by flows into active ETFs, more long-term investors are gravitating toward ETFs and active ETFs.

With the success of our valued strategic partnership with State Street, DoubleLine has become an established active manager in the ETF ecosystem, and the launch of our own standalone ETF business allows us to bring our full capabilities to clients and launch additional innovative products.

As a global asset manager, what benefits and/or nuances come with operating an active ETF product line-up bring compared to other investment wrappers (i.e., Mutual Funds, CITs, etc.)?

Distribution and capital markets are important differences for asset managers to consider. While the initial learning curve for establishing an ETF business from scratch can be significant, operating ETFs becomes increasingly efficient as a fund’s AUM scales higher, most notably for fund operations and related support functions. As evidenced by our launch of DBND and CAPE this year, we believe the benefits are well-worth the effort.

DoubleLine offers active ETFs with various levels of transparency, why offer both a transparent active ETF (NYSE listed: DBND) and an ETF utilizing the ActiveShares semitransparent structure (NYSE listed: CAPE)? Any early observations on market adoption?

In our experience with clients thus far, the preference between fully transparent and non/semi-transparent ETF structure is less significant than an ETF’s liquidity and trading quality- factors that are key to investors’ ability to efficiently buy or sell shares of the ETF.

Our DoubleLine Shiller CAPE US Equities ETF (ticker: CAPE) is our first semitransparent active ETF. As you pointed out, CAPE utilizes the Activeshares structure. In our partnership with Shiller and Barclays on the CAPE index, protecting the intellectual property of the index is paramount, not only for investors in our CAPE ETF, but also for clients invested in our mutual fund and UCITS products implementing CAPE ratio-based sector allocation in the large-cap equity universe.

As a transparent and actively managed ETF, our DoubleLine Opportunistic Bond ETF (ticker: DBND) discloses holdings daily. Due to the nature of global fixed income markets, we are comfortable with this level of transparency into the ETF’s holdings. We also see potential benefits to the transparent ETF’s liquidity profile through the utilization of custom in-kind baskets in DBND’s share creation/redemption process, particularly as a core fixed income portfolio.

What are the key considerations that investors should contemplate when considering actively managed ETFs?

For investors, it’s critical to understand and evaluate an asset manager’s capabilities, track record and experience managing through market cycles and in periods of significant market volatility. Investors and advisors should also consider the resources an ETF issuer makes available to clients, ranging from the quality of standard fund materials (e.g., fact sheets) to availability of sponsor professionals to assist with questions about a strategy or markets more broadly. The responsiveness and ability of an ETF sponsor to engage with clients, digitally and in person, as well as to support advisors’ businesses are also important considerations.

Lastly, what guidance would you provide sponsors as they consider expanding their product offerings to include actively managed ETFs?

Evaluate the business prospects of launching and growing active ETFs strategically based on sponsor capabilities and competitive advantages. Some asset classes and strategies are less suited to the ETF wrapper, but the decision to launch an actively managed ETF business in today’s environment is akin to considering whether or not to launch a mutual fund in 1980. In the future, with hindsight, I believe that managers will discover carefully planned and thought-out entries into active ETFs proved to make tremendous sense both for their own business and for the success of their clients.

Active ETF Stat Pack

Source: Factset & NYSE Internal Database and Consolidated Tape Statistics as of 9/9/2022

*Simple average

Active, Semi-Transparent Update

Source: FactSet & NYSE Internal Database and Consolidated Tape Statistics as of 9/9/2022

*Simple average

August Active ETF Launches

Source: Factset as of 9/9/2022