Playing Gundlach's 2017 Market Calls With ETFs

February 01, 2017

A few weeks ago, bond guru Jeffrey Gundlach held his annual webcast, where he shared his outlook for financial markets in 2017. The presentation, titled "Just Markets," featured a number of bold calls by the outspoken founder of DoubleLine Capital.

Though known as a bond fund manager, Gundlach was not shy about making calls on other markets, or even areas outside of finance. From equities to commodities to currencies to politics, DoubleLine's founder let his opinions be known.

For investors looking for actionable ideas, Gundlach's webcast was a treasure trove. He wasn't shy about recommending areas of the market to buy and areas to avoid. In this article, we'll recap some of Gundlach's most prominent calls and suggest what ETFs investors can use to piggyback on the advice.

Diversify Equity Exposure Internationally

One theme Gundlach returned to throughout his presentation was that most Wall Street analysts were too bullish on U.S. equities. While Trump's policies will likely lead to an acceleration in economic growth from the "forever-2%-regime" the country has been in, offsetting that is the fact that price-earnings ratios are so high.

"I do not share the consensus view that you should be all-U.S. in your equity portfolio―far from it," said Gundlach. "This is one of the periods you should start diversifying."

Gundlach pointed out that the cyclically adjusted price-to-earnings ratio (CAPE ratio) is at 25 for U.S. stocks. For developed markets excluding the U.S., it's at 14; for emerging markets, it's at 10. With valuations so much lower elsewhere, "you should peel off a part of your U.S. stock exposure and move internationally," he explained.

Emerging Markets To Outperform S&P 500

In particular, Gundlach likes emerging markets. He said EM stocks could outperform the S&P 500 in 2017. If that happens, ETFs such as the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares Core MSCI Emerging Markets ETF (IEMG) are a better bet than the SPDR S&P 500 ETF (SPY).

Gundlach also mentioned two countries he's bullish on: India and Japan. The former is a country he's mentioned in the past; he likes it secularly because of favorable demographics and the prospect of economic reforms that will take place gradually in the years to come.

The iShares MSCI India ETF (INDA), the WisdomTree India Earnings Fund (EPI) and the iShares India 50 ETF (INDY) are the three largest exchange-traded funds targeting the country.


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