Smart-beta strategies got their latest seal of approval in the form of a $100 million mandate from Jackson National Life Distributors.
The giant insurance provider has added the DoubleLine Shiller Enhanced CAPE Fund (DSENX) to its menu of variable annuity investment options financial advisers will be able to select for their clients.
Jeffrey Sherman, who co-manages the two-year-old fund along with DoubleLine Capital founder Jeffrey Gundlach, said the deal “has been more than a year in the making, and I'd definitely say they did their homework.”
The DoubleLine fund has $540 million under management, but the relationship with Jackson National will be to manage the strategy on a separate account basis.
Mr. Sherman described Jackson National's decision to include the smart-beta strategy on its variable annuity investments menu as a “testament to where we are in the rate cycle,” suggesting the need for yield.
The fund, which had grown as large at $575 million, has seen its assets decline as part of the broader stock market pullback. But the strategy is still delivering better returns than the broader market.
This year through Thursday, the fund is down 3.91%, less than the 5.09% drop in the S&P 500 Index and the average 8.34% drop in the Morningstar large-cap value category over the same period.
Over the trailing 12 months, the fund is up 3.39% while the S&P is up 92 basis points and the category average is down 3.71%. In 2014, the fund's only full calendar year, it gained 17.7%, while the S&P added 13.69% and the category average gained 10.21%.
Brian Sward, senior vice president of product development and investment management at Jackson National, said the appeal of the DoubleLine smart-beta strategy is the combination of equity and fixed-income exposure.
"The fund is unique in that you get two sources of alpha,” he said. “I think the types of advisers that this strategy would appeal to would be those looking for equity exposure but with value orientation.”
In the past, Mr. Sherman has
described the fund in a similar fashion, citing the “two distinct return sources.”
The equity side of the portfolio tracks the
Shiller Barclay's CAPE U.S. Sector Total Return Index, which is built around Yale University economics professor and Nobel Laureate Robert Shiller's cyclically adjusted price-earnings ratio.
Barclays Shiller methodology subdivides the S&P 500 into 10 sectors, eliminating the five that trade at the highest valuations relative to their individual trailing 10-year price-to-earnings ratios. Then, in an effort to avoid value traps in the stock market, the methodology rejects the one sector with the worst trailing 12-month total return, after which the index allocates equally among the four remaining sectors. Index construction occurs at the end of each month.
The fund is DoubleLine's first move into the
increasingly popular smart-beta market and is anchored on the fixed-income side with what DoubleLine does across its various multi-sector portfolios.
But according to Mr. Sherman, the strategy should not be confused with a balanced strategy because almost all the risk comes from the equity exposure.
The $100 million represents a small piece of Jackson National's overall pool of $218.9 billion in assets under management.
Jackson National, which had $23.1 billion in variable annuity sales last year, started a similar
relationship with DoubleLine in 2013 to offer access to the firm's flagship Total Return Bond Fund (DBLTX).
