Jeffrey Gundlach, the top-ranked bond manager who two years ago said stocks may have to fall further to be attractive, is now betting on a revival of the asset class.
The manager of the $32 billion DoubleLine Total Return Bond Fund said equities probably won’t repeat the poor performance they had from 2000 to 2010, when the Standard & Poor’s 500 Index, the benchmark for U.S. stocks, fell 14 percent. DoubleLine Capital LP, the $40 billion Los Angeles-based firm he founded in 2009 after being ousted from TCW Group Inc., may add stock funds to its lineup of bond offerings.
“Equities may be challenged in the near term,” Gundlach said yesterday at the Bloomberg Markets 50 Summit in New York. “But I doubt you’re going to have this lost decade or lost 15 years of equities again.”
Gundlach, 52, is following Bill Gross, manager of the world’s largest bond fund, in flirting with stocks as the biggest bears wager that markets won’t fall back to their March 2009 lows. Gross’s Pacific Investment Management Co. three years ago started an expansion into equities in anticipation that their returns will beat those of bonds over coming years. Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s biggest money manager, has been urging investors to get out of cash and bond securities and put money into equities.
Mutual-fund investors have sat out the 116 percent rally in the S&P 500 index since the March 9, 2009, bottom for the U.S. benchmark, removing $313 billion from U.S. stock funds since then, according to data from the Investment Company Institute. They’ve added $889 billion to fixed-income funds during the same period.
Gundlach, in an interview in September 2010, said he didn’t deem equities cheap enough to be attractive investments, especially shares of investment banks such as Goldman Sachs Group Inc. He compared bank stocks to those of airlines, as they haven’t made money for investors over the long term.
Since his comments two years ago, shares of Goldman Sachs have declined 16 percent, while the S&P 500 Index has surged 28 percent.
DoubleLine may bring in teams within a few months that could manage a mutual fund to invest in U.S. stocks and a long-short equity hedge fund, Gundlach said in an interview Sept. 11. Equities are a “superior” investment to fixed-income as an inflation hedge, he said, adding he likes the fact that stocks have been unpopular with investors.
“I look for investments that are cheap, I look for things that are down,” Gundlach said yesterday. “I’m not interested in buying things that are on generational highs.” The S&P 500 isn’t cheap, Gundlach said, and the Chinese stock market is a better value for investors.
Gross, founder and co-chief investment officer of Pimco in Newport Beach, California, said in his August investment outlook that the cult of equity was dying and returns of 6.6 percent above inflation, known as the Siegel Constant, wouldn’t be seen again. In his September outlook he said stocks would still outperform bonds, even as the returns of both stocks and bonds would be stunted.
Fink, a former bond trader who built BlackRock from a fixed income boutique into a $3.56 trillion asset manager, has said investors could put as much as 100 percent of their money invested in equities.
Gundlach has been a bond investor for his entire career as a fund manager. After graduating from Dartmouth College in New Hampshire with a bachelor’s degree in philosophy and mathematics, he enrolled in Yale University’s Ph.D. program in theoretical mathematics before joining Los Angeles-based TCW as a junior analyst in 1985. He developed an expertise in mortgage-backed securities and rose through the ranks, becoming chief investment officer at TCW before being dismissed in 2009 over a dispute.
Gundlach’s DoubleLine Total Return Bond Fund returned 7.3 percent this year through Sept. 12, beating 96 percent of peers, according to data compiled by Bloomberg.