Jeffrey Gundlach is the bond king, for now.
Over the past month, a stretch that saw the upheaval of financial markets around the world, Gundlach has beaten rivals including Tad Rivelle, Bill Gross, Dan Fuss and the Pimco Total Return Fund team by a wide margin. Gundlach’s $48.2 billion DoubleLine Total Return Bond Fund returned 0.7 percent in the period; all of these peers except Rivelle showed losses.
Gundlach has prospered during the turmoil, as he has for much of the year, by betting that interest rates would stay low and by avoiding minefields such as emerging market currencies and energy bonds. The co-founder of DoubleLine Capital has repeatedly cast doubt on expectations that the Federal Reserve would raise interest rates this year because of weakness he sees in the U.S. economy.
“A lot of people that were expecting the economy to pick up steam and the Fed to hike rates have had too much risk in their portfolios,” Gundlach said in an Aug. 24 interview. “We’ve avoided things that have proved problematic.”
Rivelle’s $68 billion MetWest Total Return Fund gained 0.1 percent in the past month, according to data compiled by Bloomberg. The $101 billion Pimco Total Return Fund lost 0.5 percent, putting it in the 11th percentile against peers. Gross’s $1.47 billion Janus Global Unconstrained Bond fund was down 3.2 percent, and Fuss’s $20.5 billion Loomis Sayles Bond Fund dropped 2 percent.
Pimco’s Dollar Bet
Pimco Total Return has been betting on the U.S. dollar versus the euro, Japanese yen and other currencies. The Bloomberg Dollar Spot Index, which tracks the greenback versus 10 of its most-traded peers, surged 18 percent in the 12 months through March before losing steam. In the past month, it’s declined 0.6 percent.
The fund has also wagered on longer-duration U.S. government debt, with more than 8 percent of the fund in Treasuries maturing in 2044 and 2045 as of March 31, according to the firm’s website. Yields on the 30-year note have jumped 20 basis points in the past three days, to 2.9 percent.
Total Return’s investment themes take between three months and three years to work out, a view that helps insulate the fund from being “whipsawed by some of the volatility,” Scott Mather, who manages the fund with Mark Kiesel and Mihir Worah, said in an interview. “But some people who focus on very short- term horizon really have a difficult time in periods like this.”
The fund’s dedication to Treasury inflation protected securities, known as TIPS, has hurt its performance in recent months, as “people are super beared up on inflation and basically have deflation priced into markets,” Mather said. But the managers still believe that inflation is coming and are “more than happy to keep that position and wait,” he said.