We live in a world of low yields and have for a while. Investors are finding it increasingly difficult to generate income, so invariably they have to choose between higher volatility or higher risk in their portfolios.
Here we look at approaches of some well-known Guru investors to see what lessons we can learn. In 2006 Jeffrey Gundlach was named Morningstar Fixed-Income Fund Manager of the Year. He was also named a Barron's King of Bonds back in the day and at their guest roundtable in January 2017, he recommended Putnam Premier Income Trust (PPT, Financial) as a low-risk bond portfolio with a decent yield and a barbell shape.
To infer what Gundlach likes I looked at the DoubleLine closed-end funds. Because investors can't withdraw money from closed-end funds, there is a tremendous amount of freedom for the manager to do exactly what he believes to be the best solution. Every investor I looked at ignores the benchmark because they’re simply focussed on great returns overall. In the final analysis, Gundlach cares about macro economics and doesn't position funds based on interest rate forecasts and default rates.
There's the Income Solutions Fund and the Opportunistic Credit Fund:
I've edited the screenshot with green paint to draw attention to some of the eye-popping statistics on the portfolio. Gundlach isn't avoiding duration as much as Gross and Hasenstab are; 5.3 years is still not a lot of duration for a closed-end fund, but it is much higher compared to his Guru peers.
Gundlach is reaching for returns by seeking geographic risk with 44% exposure to emerging markets and 84% to below investment-grade bonds. These are bold bets by an active manager with a real chance of achieving alpha if he's right.
The opportunistic credit fund has a bit more duration, which is in line with the thought process exhibited in the other fund. There's a tiny bit of government bonds but not a lot. In both funds, Gundlach is really avoiding U.S. Treasuries, which is exactly in line with peers Hasenstab and Gross. Everyone is shedding U.S. Treasuries.
Here is what I distill as his portfolio themes:
⦠Get great absolute returns when you don't fixate on benchmarks.
⦠Be aggressive when there's no risk of redemptions.
⦠Forget forecasting of default rates or interest rates, etc.
⦠Always put the potential to build par value over incremental income.
⦠Aggressively diversify across many geographies and issuers.
⦠Don’t concentrate on an issuer but instead on a bond type.
Positions: No positions.
