DoubleLine and Grail teaming up on active ETF

Grail Advisors LLC is partnering with DoubleLine Capital LP to launch an actively managed emerging-markets fixed-income ETF in what will be the first such fund of its kind to hit the market.
APR 14, 2011
Grail filed Wednesday with the Securities and Exchange Commission to launch the Grail DoubleLine Emerging Markets Fixed Income ETF, which is the firm’s ninth ETF, Grail chief executive William M. Thomas said in an interview at Morningstar Inc.’s annual conference in Chicago. “This is where the flows are going and what the market is demanding,” he said of the focus on actively managed bond ETFs. DoubleLine, for its part, plans to offer a number of ETFs, said Jeffrey Gundlach, chief executive of the firm, in comments to InvestmentNews at the conference. "It seems like a sensible way of growing the business," Mr. Gundlach said, althought he wouldn't say if there will be future offerings with Grail. Grail recently secured approval from the SEC to launch an actively managed international equity ETF but has put that product on the sidelines for now because of the demand for fixed-income strategies, Mr. Thomas said. Grail is in talks with a number of managers interested in looking to do actively managed ETFs and expects to launch three to five more ETFs by year-end. Specifically, many fund companies are talking to Grail about folding existing mutual funds into active ETFs, he said. Huntington Asset Advisors Inc., the investment arm of Huntington Bancshares Inc., plans to merge its nine-year-old Huntington Rotating Markets Fund Ticker: (HRIAX) into an actively managed ETF, which it just filed with the SEC to launch, once the ETF gets up and running. “We have a lot of firms talking to us about doing a similar thing,” Mr. Thomas said. “There will be more of this in coming months.” The total expenses for the emerging-markets fixed-income ETF will be 95 basis points. Overall, mutual fund companies are embracing the fact that ETFs aren’t a passing fad, Scott Burns, an ETF analyst at Morningstar, said during a conference panel discussion Wednesday afternoon. “ETFs are much more likely to overtake stocks than funds,” he said. Ultimately, it’s the fund companies that are launching ETFs, and Mr. Burns predicts that eventually, mutual fund companies will organize themselves in such a way that there is a head of active investment management and a head of passive investment management, and the mutual funds and ETFs are just vehicles to deliver the strategies. “It won’t matter what structure investors choose,” he said.

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