The bond fund run by DoubleLine’s top two has outperformed the overall market by taking a defensive stance without fully committing to an impending recession. The DoubleLine Opportunistic Bond ETF (DBND) has posted a total return of 3.2% over the past year, beating the broadest bond funds, such as the iShares Core US Aggregate Bond ETF (AGG), and the FactSet/Morningstar determined ETF category index. The fund’s 30-day SEC yield is about 5%. DoubleLine’s Deputy Chief Investment Officer Jeffrey Sherman is the fund’s portfolio manager, along with CEO and Chief Investment Officer Jeffrey Gundlach. Sherman told CNBC that the DoubleLine team sees signs of a potential economic slowdown, but doesn’t expect the Federal Reserve to cut interest rates significantly. “You shouldn’t bet on a big economic expansion at this point, which means you probably shouldn’t go into the riskiest parts of the market. You should expect interest rates to stay at these levels for a period of time, which means high quality makes a lot of sense,” Sherman said. The fund has positions in U.S. Treasuries and agency mortgages, which would do very well if the economy weakened, but most of its exposure is in corporate credit, leaning toward higher-rated issuers, Sherman said. The fund’s website says 41% of its portfolio is investment-grade, with less than 12% below investment grade. “Given the yield levels, you get a relatively high reward just investing in bonds with high credit ratings,” Sherman said. Bonds that are perceived as riskier tend to have higher yields to attract investors. But right now, the spread between safer and riskier bonds is very narrow, Sherman said. As a result, this is the smallest amount of below-investment-grade exposure DNBD has had since it was founded in 2022, and similar strategies in DoubleLine’s other products have the lowest exposure in 14 years, Sherman said. “We don’t see a rise in quality that really goes down,” Sherman said. The ETF has a duration of six years, with the weighted average maturity of the bonds being more than seven years. Sherman said the fund will generally maintain this time exposure but will be active in selecting different types of debt. “It should behave like any other intermediate-term fund. It should zigzag like that part of the market. So it’s not an unconstrained fund or anything like that. And if there’s something that’s obviously cheap, we’ll overweight it and try to get exposure,” Sherman said. The DBND fund has an expense ratio of 0.50% and about $270 million in assets. The fund is part of a growing trend of asset managers incorporating some of their active investment strategies into ETFs, with bond funds and other income products being the most popular.
This DoubleLine Bond Fund is Outperforming the Market. Here’s What to Buy
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