5 Investment Ideas From Bond King Jeff Gundlach

Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Jeff Gundlach runs DoubeLine Capital, one of the world’s largest bond funds. His reputation has grown in the investment community in recent years, given the performance of his fund, and some great calls he’s made on Apple (NASDAQ: AAPL), Japan, and natural gas.

Gundlach is a fan of webcasts -- he usually holds several a year, where he lays out his outlook for the market and frequently gives a few picks.

In his most recent webcast, held Thursday, Gundlach favored US Treasuries, emerging markets, Apple, Japan, and gold.

Ignore the US Treasury route

Gundlach has been bullish on Treasuries now for a few weeks, and it’s been a losing trade. Since the beginning of May, the yield on the US 10-year has jumped from about 1.6% to over 2.50%.

But Gundlach is sticking by his call. He thinks the yield is poised to drop back to 1.7%. Gundlach argues that, based on economic data, there’s no sign of inflation anywhere, and that bonds will be the place to be in the coming months -- specifically, treasury bonds.

If investors want to follow Gundlach into the trade, they can do so by buying a Treasury bond ETF. iShares Barclays 7-10 Year Treasury Bond Fund (NYSEMKT: IEF) is such an ETF. It holds US Treasuries expiring in 7-10 years, and has an expense ratio of just 0.15%.

Over the last three months, it has been a poor performer, dropping 5% -- a relatively large decline for a government bond fund.

But if Gundlach is right, IEF might be a solid investment.

The ultimate contrarian play

For investors interested in making a contrarian play, Gundlach thinks emerging markets are the bet to make.

Some of the biggest emerging market economies include Brazil, China, and Turkey -- all of them have struggled in recent months. China’s economy might be on the verge of a banking crisis, while Turkey and Brazil have faced widespread protests.

The problems that these countries face appear to be very real, so any investment right now obviously carries a great degree of risk. But sometimes, playing the contrarian can be profitable -- Gundlach made a similar call on natural gas last year and it worked out spectacularly.

As with US Treasuries, the best way to play emerging markets might be through an ETF. Individual emerging market ETFs are out there, but there are also entire sector ETFs, like Vanguard’s Emerging Markets (NYSEMKT: VWO).

The fund is exposed to a number of emerging markets including Brazil, Turkey, Mexico, and India. As an index fund, it has a low expense ratio -- just 0.18%.

Year-to-date, it’s down nearly 14% -- as one might expect, given the recent troubles in emerging markets. But if investors are looking to play an emerging market turnaround, this fund might be the best vehicle with which to do so.

Apple is still printing money

Gundlach has a bit of a history with Apple. He was a vocal critic as early as last April, arguing that the stock should be sold short. Back then, he slapped a price target of $425 on the Cupertino tech giant.

All last summer, Gundlach’s investment idea looked terrible -- Apple continued to power higher. But then, things changed quickly. The hedge fund community, many of which had sizeable positions in Apple, dumped their stock seemingly in unison, and shares plunged to around $400.

Now, Gundlach has switched sides. He’s positive on Apple, and loves the company’s cash flow.

He still thinks the loss of Steve Jobs is a big deal -- someone he’s referred to in the past as Apple’s rainmaker and product innovator. But with the company generating billions in free cash flow, and the stock priced with a far below market multiple, Gundlach likes Apple at these levels.

Gundlach remains long the Nikkei

When it comes to Asia, Gundlach continues to like Japanese stocks. He’s long the Nikkei 225 stock index -- a position he’s had for some time.

Until recently, the Nikkei had been up as much as 60% to well over 15,000. But within the last few weeks, Japanese stocks have turned, and the Nikkei has fallen back to near 13,000 -- perhaps things just moved too quickly.

Investors looking to play Japanese stocks could purchase an ETF, or a major Japanese company trading in the US like Sony (NYSE: SNE). Shares of the Japanese electronics giant are up a staggering 90% year-to-date, but could continue to rally if Gundlach is right.

A weak yen is good for Sony, which still remains heavily reliant on the sale of consumer electronics to foreign buyers.

The one issue investors in Sony have to contend with is the involvement of activist investor Dan Loeb. He wants Sony to do a partial spin off of its entertainment business. Any battle between Loeb and Sony’s management could affect shares -- although, if Loeb’s recent success with Yahoo is any indication, that might not be a bad thing.

Gold has more upside than downside

Just two years ago, gold was in striking distance of $2,000 an ounce. Things have changed. On Thursday, the price of gold plunged below $1,200.

Gundlach isn't a gold bull per-se, as I’ve written in the past, he actually favors silver when it comes to investing in the precious metals. And his mind hasn't changed much -- in fact, he believes that momentum alone could pull gold prices down to $1,000.

However, he argued that the current risk-reward profile for gold was favorable. In his estimation, gold might have a 20% downside from these levels, but a 50% upside. If you don't own any gold, Gundlach said it might make sense to start building a position -- but be prepared for further downside in the near-term.

Replicating Gundlach’s trades

As with any investment guru, purely seeking to replicate their trades is probably not the best strategy. That said, Gundlach has made some incredible calls in the past, and given the amount of money he manages, he’s certainly worth paying attention to.


Joe Kurtz has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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