Jeffrey Gundlach, “This is a Big, Big Moment”
Last Thursday DoubleLine Capital’s CIO Jeffrey Gundlach, 56 anni, said it is time for fixed-income investors to prepare for rising interest rates and higher inflation by reducing their positions, moving money into cash and protecting against volatility.
“This is a Big, Big Moment,” Mr. Gundlach said during a webcast. “Interest rates have bottomed. They may not rise in the near term as I’ve talked about for years. But I think it’s the beginning of something and you’re supposed to be defensive.”
Mr. Gundlach has built a career as a successful money manager and financial forecaster. This year, his flagship $61.7-B DoubleLine Total Return Bond Fund is lagging behind the benchmark Bloomberg Barclays US Aggregate Bond Index while avoiding high-yield debt, which is up 15%, and shunning longer-duration positions. The Total Return fund’s effective duration is 2.4 years, less than 50% of the index.
He cited a July low of 10-yr US Treasuries that did not hold as evidence interest rates have hit bottom. The fund manager said rates on the US 10-yr T-Bond may surpass 2% by the end of Y 2016.
Total Return gained about 4% this year through last Wednesday, trailing the benchmark bond index by 2%, according to data compiled. It has beaten the index over 3 and 5 years. The majority of Total Return’s assets were in mortgage-related securities as of 30 June 30, according to a DoubleLine fact sheet.
Mr. Gundlach is sticking to his prediction that Republican Donald Trump will be elected the next US President. He said both Donald Trump and Democrat Hillary Clinton have advocated more spending on infrastructure, which would add fiscal stimulus to the economy as central bank low and negative-interest rate policies across developed markets show diminishing returns.
“This idea that fiscal stimulus may be coming seems to be getting sniffed out by the bond market,” Mr. Gundlach said. More debt spending may increase the cost of government borrowing by adding supply and making investors demand higher yields, he said.
“People say, ‘How can rates rise?”’ he said. “That’s how they can rise and they are sort of rising already.”
Mr. Gundlach continues to attract new money, including a net $158-M in August to the Total Return Fund, according to industry estimates. DoubleLine Capital managed more than $102-B as of 30 June.
Have a terrific weekend.