Gundlach: “I’m Not Really Bullish on Bonds”
Jeffrey Gundlach, one of the most respected bond managers in the world with over $100B in fixed-income assets under management, fears that interest rates are going up.
Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call on September 12. The focus of his talk was DoubleLine’s flagship Total Return Bond Fund, DBLTX. The slides from his presentation can be found here.
“I’m not really bullish on bonds,” Gundlach said.
His team uses a scale from -2 to +2 to rate their bullishness on asset classes. Gundlach said he was at a -1 for the 10-year bond, adding that he was closer to -2 than to zero.
While discussing whether the yield on the benchmark 10-year Treasury would end the year at or below 1.5%, he said “I’m not in the 1.5% 10-year camp.” Gundlach predicted that “it won’t go below 2%.” It closed at 2.17% on the day he spoke.
This is not a new position for Gundlach. On June 13, when the 10-year closed at 2.21%, he held a webcast during which he said that rates were going up.
Treasury rates are being held down by a “relative value argument,” according to Gundlach. He explained that German 10-year sovereign debt is priced at 39 basis points, and he suggested that investors prefer the relative safety and higher yield of U.S. Treasury bonds.
“The rate is too low on the 10-year,” Gundlach said. “There will be more bias to go up.”
Shifting to discuss DoubleLine funds, Gundlach devoted a portion of the webcast to deride a Wall Street Journal article that he said claimed the performance of DBLTX had deteriorated in the last year. He showed that his fund had outperformed its benchmark (the Bloomberg Barclay’s Aggregate Index) and a mortgage index (the Bloomberg Barclay’s MBS Index) over the last year and the last five years. He showed this by looking at five metrics – total return, volatility, Sharpe ratio, downside risk and Sortino ratio.
Indeed, he showed that its performance had been better in the last year than over the last five years, based on those five metrics.
Gundlach did not dispute the claim in the article that his assets under management declined in the last year. But he showed that its percentage decline was less than that of similar funds from PIMCO, JP Morgan and TCW.
“The wacko world of the press has it that somehow the fund is struggling,” Gundlach said. “That is a crazy mischaracterization.”
I’ll look at what Gundlach said about global markets, the Fed and other asset classes.