Jeffrey Gundlach, who famously predicted Donald Trump’s victory in 2016, said that the president will defeat the presumptive Democratic nominee, Joe Biden, in November. He also dimmed the expectations of fixed-income investors when he said to avoid short- and long-term bonds.
Q2 2020 hedge fund letters, conferences and more
Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call at 4:15 pm on August 11. The focus of his talk was DoubleLine’s fixed-income closed-end funds, DBL, DSL and DSY. There were no slides accompanying his presentation.
I’ll come back to Gundlach’s political predictions, but first I will review his remarks about his funds, the economy and the capital markets.
DBL is the closed-end version of DoubleLine’s flagship total-return mutual fund, DBLTX. Interestingly, Gundlach said it has a duration of zero, because some of its assets, like collateralized loan obligations (CLOs) and asset-backed securities (ABS), have durations of -5 and -6, respectively. They move in the opposite direction of Treasury bonds. The fund, he said, may be volatile but it is not correlated to bonds.
As with most closed-end funds, Gundlach said that price movements – and whether they trade at a premium or discount – are mostly a function of supply and demand on the NYSE.
The DoubleLine closed-end funds traded at extreme discounts in March. That could happen again. He said it was because, “fear and loathing overwhelmed the demand.” Gundlach noted that similar price dislocation happened in gold a few years ago and in Delta Airlines’ stock in March.
Gundlach reassessed his mortgage-backed holdings in March and April based on the expectation that many mortgages will not get paid due to economic hardship resulting from the pandemic.
Bond market outlook
Emerging markets were incredibly weak in March and early April, according to Gundlach, and had very poor liquidity. The same was true in the Treasury market.
“I have never seen what happened in terms of liquidity in the Treasury markets in March in April,” he said.
Gold prices recently hit a new high in dollars and in other currencies, he said. It held up well until the dollar fell about 10%.
“Most markets are in a reversal stage,” he said, noting that gold was down in price the day he spoke.
His prediction of reversals extends to the bond market.
Read the full article here by Robert Huebscher, Advisor Perspectives
