Gundlach’s DoubleLine: Worst Time Ever to be a Passive Bond Investor

This article was edited on September 9, 2020, to add a link to the slides from the webcast.

Passive bond funds – particular those that track the popular Barclay’s AGG index – offer the worst risk-return profile ever, according to Jeffrey Gundlach’s DoubleLine Capital.

Gundlach spoke to investors via a webcast, which he titled, “Hey Kid, Want Some Candy?” The candy theme was to suggest that what tastes good in the short term is not necessarily good for you in the long term. The focus was on his flagship total-return fund (DBLTX). Slides from the webcast are available here. Gundlach is the founder and chairman of Los Angeles-based DoubleLine Capital.

Gundlach’s co-presenter was Andrew Hsu, a portfolio manager for the total-return fund.

DoubleLine tracks the historical ratio of yield-to-duration on the AGG. This ratio shows the expected return (yield) per unit of risk (duration). Given historically low yields and an increase in the duration of the AGG over the past decade, Hsu said, “this may be the least attractive time ever to be invested in a passive fixed-income fund.”

Gundlach also said that high-yield bonds are the most overvalued in their history.