Jeffrey Gundlach – Betting on Bonds in 2012

Jeffrey Gundlach – Betting on Bonds in 2012
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Jeffrey Gundlach - Betting on Bonds in 2012

An outlook on the bond market and why investors can profit from investing in bonds, with Jeffrey Gundlach, DoubleLine Capital CEO/chief investment officer.


let’s get back to capital markets editor who’s here with a very, very special guest. endeed. thank you. joining us is jeffrey gundlach, manages in excess of 22 billion for institutional and mutual fund clients. jeffrey, welcome. happy new year. we did a lot of reporting last year, you joined us many times on what was a spectacular year in terms of your performance adding value.let’s get right to how’s the portfolio position today for what many believe will be another difficult year in 2012? gary, we have been using a lot of same themes in our portfolios for a couple of years tweaking them as we lean against the pricing sentiment in the market but some of the main themes we are using is webelieve investors in fixed income and more broadly need a mix of assets with the tail risks that are in the marketplace so fixed income portfolios need to have some credit exposure that would do well if there was higher interest rates. this means that those credit positions need to be having some trouble right now. the idea is that if the economy gets better, that would lead to higher interest rates, maybe the fundamentals could improve. our favorite sector there is the default exposed mortgage market. we have about 36% of the portfolio in that area. it was lower in the summer of 2011 but the credit markets got cheaper in this to september 30th or so and built that up.but also, if you have the credit positions, you need to havesomething to do well if the economy doesn’t get better. if the housing market, for example, continues to be lousy or gets worse again and that means you have to have some long-term government bonds. still, within a portfolio. the nice thing about long-term government bonds is at least there’s some yield on them. i mean, it is not what we would like to see in the old days but in the jenny may market, we can get yields of about 5.5% or so in the long term area so it’s a way of balancing the portfolio.most important point, though, is you have to be dollardenominated. yes. the portfolio you’re describing, if it’s a equity portfolio, you wouldn’t be essentially trying to track an index. i think it is to understand. morningstar is the sort go-to in terms of how they’re rated. your fund was not rated because you were not style box at least managing to a style box in 2011. i think that this is something important and interesting. why would you not rate it and why would you not give in the morningstar stars that one would have thought you would have gotten. i know what you mean. the performance in 2011 and since we launched the fund looks like the ’70s and wondered what happened. why we’re not rated or nominated. i think you are right. has something to do with style box and we are not an index fund and we are certainly trying to have a moderate risk profile. it is interesting that our total return strategy over the past 15 years if you bought it on the worst possible day at the top and then sold it at the worst possible day on the bottom that’s called a drawdown and important statistics. the worst in 15 years with daily da is less than 4%. not to interrupt but if you were to alter the investment style and sacrifice performance, in fact, you may be able to fit in to a style box and thus sort of falling in to the morningstar category in terms of trying to get the analysis. is that correct? well, maybe, yeah. i hate the idea of indexing andbonds. i think it’s sort of crazy because all you’re doing islending more and more money to the borrowers borrowing more and more. like the s&p 500, it’s an outstanding supply weighted scheme so when you had ford and gm back ten years ago borrowing more and more money, getting more desperate, the stupidest thing to do is loan them more money. if a brother-in-law comes to you, you might lend it to him but coming back and back you realize you won’t get the money back. indexing in bonds is dumb. these days, the index funds in bonds own more and more and more of short-term treasuries. yep. which is kind of silly. they don’t yield anything. jeffrey, as you — i’m sorry we have the leave it there. as you know, that is closet indexing.doesn’t make senses to stocks and you have proven it doesn’tmake sense with bonds. thanks for clearing that up. thank you for giving us an outlook of 2012. thanks, gary. stay dollar denominated. we’ll see you again very soon. thanks a lot. back to you, carl. good stuff.

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