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The Evolution of DoubleLine's Securitized Credit

DoubleLine, a well-known player in the investment management industry, has made a significant shift in its approach to the securitized credit market. The DoubleLine Securitized Credit ETF, marked by its trading ticker DSCO, commenced operations on the NYSE Arca this week, transitioning from its previous incarnation as a mutual fund known as the DoubleLine Securitized Credit Fund (ticker DBLIX).

The decision to convert to an exchange-traded fund (ETF) model is a strategic move by DoubleLine to broaden its reach and make investments in the securitized credit markets more accessible to a wider array of investors. Ron Redell, DoubleLine's President, highlighted that this transition provides a more transparent and efficient investment vehicle for those looking to gain exposure to this sector.

Investment Strategy

The DoubleLine Securitized Credit ETF is designed specifically to achieve two core objectives: generating income and maximizing total returns. This aims to be accomplished through active investment in a diverse array of securitized credit instruments. Notably, this includes:

• - Asset-Backed Securities (ABS)
• - Commercial Mortgage-Backed Securities (CMBS)
• - Non-Agency Residential Mortgage-Backed Securities (RMBS)
• - Collateralized Loan Obligations (CLOs)

Certain prevailing market conditions featuring aggressive interest rate environments and the complexities within corporate credit markets have amplified the necessity for dynamic investment mechanisms. Ken Shinoda, one of the portfolio managers for DSCO, mentioned that the ETF offers actively managed exposure to these asset classes while mitigating risks associated with traditional fixed-income investments.

Expertise at the Helm

The DSCO portfolio is managed by a seasoned team that has been with DoubleLine since its inception over sixteen years ago. This includes:

• - Morris Chen, who leads the Commercial Mortgage-Backed Securities and Commercial Real Estate team.
• - Andrew Hsu, who oversees the Asset-Backed Securities team.
• - Ken Shinoda, who heads the Residential Mortgage-Backed Securities team.

Their collective experience is invaluable in navigating the nuanced investment strategies involved in securitized credit. The team implements rigorous bottom-up credit analysis and evaluates various sectors, focusing heavily on cash flows and structural risk management within asset-backed securities, CMBS, RMBS, and CLOs.

Market Context and Future Outlook

The decision to move towards an ETF format comes at a time when many traditional fixed-income portfolios are heavily reliant on interest-rate-sensitive and unsecured corporate credits. Given the current market environment marked by compressed yield spreads, the shift towards securitized credit offers a compelling alternative. Shinoda believes that a diversified approach that integrates securitized credit is not only advisable but critical in the current economic landscape.

The ETF is benchmarked against the Bloomberg US Aggregate Bond Index and carries a management fee of 0.49% of the fund's average daily net asset value. This fee structure arises from the operational expenditures related to maintaining the ETF's standard while providing investors access to sophisticated investment strategies.

Performance Metrics

Launching as a mutual fund on September 3, 2019, the DSCO has developed a respectable three- and five-year performance track record. Although it's early days for the ETF, prior data from the mutual fund will inform its performance expectations moving forward.

The performance of both versions of the fund will be closely monitored, comparing metrics such as standard deviation and Sharpe ratio to ensure they meet investor expectations and effectively manage risk. Investors can find detailed performance data as well as insights into market positions through regular updates from DoubleLine.

Conclusion

With this transition, DoubleLine aims not just to reshape how investors access securitized credits but to continue enhancing its suite of investment products. This aligns with their commitment to being adaptable and responsive to the needs of their clients. As they embrace this innovative ETF structure, all eyes will be on DSCO as it seeks to navigate the complexities of today's financial markets while providing attractive income solutions.