The “Bond King” Jeff Gundlach’s Portfolio for “7% Returns” In The Coming Economic Storm.
Let’s break it down.
After calls for a recession in 2023 are quickly going by the wayside with the calendar, others are still anticipating an economic slowdown for what now looks like sometime in 2024.
With the stock market selling off hard in August and September of 2023, many expect more downside, and if so, what can an average investor do to weather the storm?
Enter Jeff Gundlach, the “Bond King” and Founder of DoubleLine Capital.
He spoke on the UBS Podcast and laid out an interesting strategy for capital appreciation and defense in the face of a further deteriorating economy and stock market.
In short, he laid out a broadly conservative strategy of four 25% buckets; “I mean only about 25 or 30 percent equities and the same quantity or slightly more of bonds.”
Think Advisor does an excellent job of synopsizing the show. So, I thought it would be helpful to map out what Gundlach advises and find what commonly accessible equity instruments available to the average investor could match.
Quoting the Think Advisor article:
“Specifically, Gundlach suggested a 25% allocation to 10-year and longer Treasury bonds, which he said could provide portfolio ballast; investors could reach 30% gains or higher on the 30-year bond and about half of that on 10-year bonds, he added.”
Well, bonds, or fixed income, have in the 10-year US Treasury, had their worst year in a very, very long time. 1788 to be exact!
That looks like a good setup for a bond rally in the future. The issue is when. But, like Warren Buffett likes to say, “Be fearful when others are greedy and be greedy only when others are fearful.”
That chart looks like fear in the bond market. In fact, I think the bond market is telling the Federal Reserve to go fly a kite.
In fact, government bonds look like a generational buying opportunity these days.
So, if indeed bonds present a good buying opportunity today, we could look at vehicles such as $SPTL or the $TLT, which has taken an absolute beating in the last couple of years. Remember, “be greedy”.
Back to the article for the next 25% bucket:
“He also recommended 25% in “cash-ish” holdings — other very high-quality fixed-income investments, such as a low-duration bond fund, the DoubleLine Commercial Real Estate ETF (DCMB), or double- or triple-B fixed income, such as double-B floating-rate bank loans; or very high-quality commercial mortgage-backed securities.”
That is nice of Jeff to recommend his own fund in $DCMB, but you could also consider $FLRN, the SPDR® Bloomberg Investment Grade Floating Rate ETF.
For straight-up cash, money market funds like Schwab’s $SNOXX pays a 5.05% yield at the date of this writing.
Back to the article.
“The investment chief suggested allocating 25% to stocks, but not to the seven that have driven the S&P 500’s gains year to date…Stocks are very overvalued now, a mirror image to their position in 2022, when they were undervalued relative to bonds, he said.”
“Gundlach also likes commodities for the first time in a long time after being on the defensive for a couple of years, and recommended allocating 25% of the portfolio to them.”
Of course, that means “value” or dividend-paying stocks, like the ones in $VYM and $VTV.
For commodities, you can grab them all with $DBC.
So what would a “25%–25%–25%–25% portfolio” from Gundlach look like?
The article concludes by telling us that Gundlach believes the consumer will be “tapped-out” come early 2024 and that the yield curve de-inverting is the signal for the bottom to fall out of the economy.
What say you? Do you like this portfolio for a downturn and do you agree that 2024 may present us with economic recession?
What other ETFs do you like for the categories Gundlach identifies?
Thanks for reading. Be good stewards of your earnings.
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