DoubleLine Converts Mutual Fund Into ETF — Here's Why It Matters For Bond Investors

DoubleLine has formally launched one of its long-standing securitized credit strategies in the ETF structure, capitalizing on the rising interest in actively managed fixed income ETFs as investors seek more nuanced fixed income investing options beyond vanilla bond market exposure. The DoubleLine Securitized Credit ETF (NYSE:DSCO) launched on Tuesday after the conversion of the DoubleLine Securitized Credit Fund, which was previously available as a mutual fund with the ticker DBLIX. This provides investors with a new way to access the strategy via an intraday-traded, more transparent vehicle, which has become an increasingly popular choice for actively managed bond funds. DSCO is an actively managed ETF that seeks to maximize total return and provide current income by investing in the securitized credit market, which includes asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), non-Agency residential mortgage-backed securities (RMBS), and collateralized loan obligations (CLOs). The fund is designed to be a complement or alternative to traditional core bond market exposure and tracks the Bloomberg U.S. Aggregate Bond Index. The new ETF also represents an industry trend, where asset managers are increasingly transforming existing mutual funds into ETFs to satisfy investor demand for liquidity and tax efficiency. A Play On Diversifying Fixed-Income Risk Portfolio manager Ken Shinoda positioned the DSCO ETF as a solution to what he believes are structural concentration risks inherent in traditional fixed income portfolios. With bond portfolios still largely driven by interest rate sensitivity and unsecured corporate credit, Shinoda believes that securitized credit can provide differentiated sources of return—especially in today's environment where corporate credit spreads are still relatively tight. Securitized credit is not a one-size-fits-all trade, and it is best addressed through an active, bottom-up approach rather than a passive one, Shinoda said. Sector-level weightings and deep analysis of collateral and deal structures are key to managing risk in ABS, CMBS, RMBS, CLOs, and Agency CMBS, he said. This sector expertise is represented in the management team of the fund. DSCO is managed by Morris Chen, Andrew Hsu, and Shinoda—each of whom heads a specialized securitized credit team at DoubleLine, focusing on commercial real estate, asset-backed securities, and residential mortgages, respectively. Each of them has been with the company since its inception over 16 years ago. Fees And Positioning The ETF has a management expense ratio of 49 basis points, which is in line with other actively managed securitized credit ETFs. Although tracking the Aggregate, DSCO’s underlying exposures differ significantly from the index's large exposure to Treasurys and agency mortgage-backed securities. For investors operating in a rate environment where "set-it-and-forget-it" bond strategies have underperformed, DSCO provides another actively managed choice that seeks to generate income with risk drivers that are highly distinct from vanilla duration views. In fixed income, diversification is back in style—and securitized credit is making a compelling case for center stage. Photo: Shutterstock