Gundlach Warns of Doom for Bonds, Urges Buying Them Anyway

The bond king spoke at the Exchange conference in Florida.

sumit
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Senior ETF Analyst
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Reviewed by: etf.com Staff
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Edited by: James Rubin

Despite painting a bearish picture of the U.S. government’s finances, Jeffrey Gundlach sees opportunities in bonds.  

Speaking at the Exchange conference in Miami Beach, Florida, the founder of DoubleLine Capital laid out an extensive case for why the United States’ debt load is on an unsustainable path.  
 
“We’re a hedge fund that hopes we don’t get a margin call,” he said, as he ran through dozens of slides illustrating the debacle that the U.S. government could find itself in if interest rates stay elevated.  

But despite that pessimistic take, Gundlach told the audience that they should consider bonds. It’s a somewhat puzzling, counter-intuitive piece of advice considering Gundlach’s downbeat assessment of the U.S. fiscal position. But presumably, he believes that bonds are better positioned to weather any potential economic storm than stocks.  

In his view, investors should focus on maturities of two to four years to lock in current yields and benefit from any price appreciation, should the Fed start cutting rates.  

“You want something that’s a little bit longer [than money markets],” he remarked, while noting that investors can pick up additional yield by buying fixed income securities outside of U.S. Treasuries. 

Some of these securities have “virtually no risk” despite being “non-guaranteed,” he said.  

Examples include commercial mortgage-backed securities. While admitting that the prospect of investing in commercial real estate makes most investors “break out in hives,” Gundlach said that not all commercial estate is the same. 
 
“Commercial real estate is not a sector; it’s a sector of sectors. There’s a very big divergence between warehouses and San Francisco office buildings,” he noted.  

Gundlach recommended that investors take a look at the $100 million DoubleLine Commercial Real Estate ETF (DCRE), which launched less than a year ago. 

“We have the fund invested in nothing that will default, by our analysis. Everything is AAA, [with] a two-to-three-year life, and it’s kicking off 7.5%,” he said. 

“Overhyped” Economy 

Though he clearly favors bonds, Gundlach does see value in some equities. He continues to be bullish on India, which he said is the only emerging market he would buy today thanks to strong growth and favorable demographic trends. 

He also said that he likes the newly-launched DoubleLine Fortune 500 Equal Weight ETF (DFVE), which he sees as better positioned than the top-heavy S&P 500.  

“We think it’s a very good time to not be in the S&P 7,” he said, referring to the Magnificent 7 tech stocks which have accounted for a large chunk of the S&P 500’s recent returns.  
 
“[The S&P 500] is really overvalued; I can’t stand these types of valuations. Don’t try to pick tops, but the valuation is based upon an 11-12% earnings growth prediction for this year. Last year at this time, the analyst prediction was 11%, [but] it came out at 1%,” he explained. 

Gundlach warned that if the Fed doesn’t make the type of rate cuts that markets expect or if earnings underwhelm, then the stock market could tumble.  

Ending his talk on a characteristic negative note, Gundlach said that the economy is “overhyped.”  
 
“Take the deficit away and there’s no growth whatsoever. We’re living off the kindness of strangers and they’re getting less kind all the time.” 

Sumit Roy is the senior ETF analyst for etf.com, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining etf.com, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for etf.com, with a particular focus on stock and bond exchange-traded funds.

He is the host of etf.com’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays, etf.com’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.