DoubleLine Capital’s Jeffrey Gundlach recommends shorting the S&P 500 Index and going long on emerging market stocks despite conventional wisdom that rising U.S. rates will lead to a stronger dollar.
Specifically, Gundlach recommended wagering long on the iShares MSCI Emerging Markets exchange-traded fund and betting against the SPDR S&P 500 ETF. He also said it’s a myth that the Federal Reserve raising rates necessarily leads to a stronger dollar.
“What the heck, let’s have some fun,” Gundlach, chief investment officer of DoubleLine Capital, which managed $105 billion as of March 31, said Monday at the Sohn Investment Conference in New York. “Let’s leverage it one time.”
Gundlach, 57, is primarily a bond investor who has built a career making prescient market calls. Last year, he correctly predicted that Donald Trump was likely to be the next U.S. President. On a May 2 webcast, he advised sticking with gold and emerging-market debt while warning the stock market may face a correction and oil prices are likely to fall.
“I don’t like catching falling knives, you’ve gotta watch out for value traps,” Gundlach said during his Sohn presentation Monday. “For about a year-and-a-half now, there’s been no outperformance of the S&P 500, but rather the emerging markets had been competing well and now they’re outperforming year to date,” he said.
At last year’s conference, Gundlach recommended a pair trade, going long on a mortgage REIT ETF while shorting a utilities sector ETF. After covering the cost of one turn of leverage, the trade yielded 40 percent in the year through Friday.
The Los Angeles-based firm’s flagship $53.5 billion DoubleLine Total Return Bond Fund, which invests mostly in mortgage-backed securities, has a better five-year record than 93 percent of its Bloomberg peers, with average annual returns of 3.6 percent.
This article was provided by Bloomberg News.