State Street Global Advisors (SSgA), the Boston-based third largest US issuer of exchange-traded funds, and DoubleLine Capital – promoted by star fixed-income manager Jeffrey Gundlach, recently rolled out a pair of new ETFs; one aimed at fixed income securities from emerging markets and another at short-maturity bonds.
The actively managed SPDR DoubleLine Emerging Markets Fixed Income ETF (EMTL) seeks to provide exposure to emerging market fixed-income instruments, both corporate and sovereign issuers, and aims to beat the performance of the JP Morgan Corporate Emerging Market Bond Index (broadly diversified).
ETML has tapped a largely virgin niche since there were only four actively managed bond funds prior to its launch. DoubleLine’s expertise in sovereign screening, duration positioning and risk management, combined with their bottom-up research that includes sovereign macro overlays, does make for a compelling investment case for the new fund.
The fund currently holds 62 securities and has an average coupon of 5.18 percent. While the fund seeks to maintain a weighted average effective duration two and eight years, it’s modified adjusted duration currently stands at 5.28 years.
Duration is an interest rate risk metric for fixed-income securities and measures approximate price change due to 1 percent change in yield. A duration of 5.28 years indicates bond prices will approximately fall 5.28 percent for each 1 percent rise in interest rates.
The portfolio will typically invest in securities from at least five emerging market countries and limit the exposure to any single country to 20 percent. The fund can invest in a wide range of credit qualities and fixed-income vehicles, though below investment-grade holding are generally kept below 20 percent of total assets.
EMTL’s biggest advantage lies in the fact that the fund manager can select both sovereign and corporate debts for the portfolio; most actively managed and nearly all passively managed funds choose one of the two alternatives. The mixing of two different bond classes could set the new fund apart from the pack. The fund has a gross expense ratio of 0.75 percent, or $75 for each 10,000 invested.
The other fund, the SPDR DoubleLine Short Duration Total Return Tactical ETF (STOT), counts Gundlach among its managers and invests mainly in US debts with no real constraint on type or credit quality, and can even invest in other exchange-traded funds.
However, the new fund will aim to invest more than 25 percent of assets in mortgage-backed securities while up to 20 percent of the portfolio could be invested in junk bonds.
Exposure to non US-dollar denominated debt is capped at 15 percent, though foreign exposure could grow as long as the issues are denominated in USD. Additionally, 20 percent of STOT’s assets can be invested in securities that are substantially associated with emerging markets in terms of revenue, assets or domicile.
The portfolio consists of a conservative mix of bonds as evidenced from the fund’s modified adjusted duration of 2.41 years. While the portfolio targets a duration range between one and three years, at times the fund can substantially digress from the range, according to SSgA.
Investors looking for capital preservation and less volatility along with a small income stream are likely to find STOT attractive.
The fund has a gross expense ratio of 0.50 percent, or $50 for each $10,000 invested.
Disclosure: No holdings