Jeffrey Gundlach's not afraid of bonds

Don't let those low rates or fear of a bond bubble scare you off — own some long-dated U.S. Treasury bonds. “You should own [long-term Treasuries] as part of diversified portfolio, not that it's going to make you rich,” Jeffrey Gundlach, chief executive of DoubleLine Capital LP, said today at the Altegris strategic-investment conference in Carlsbad, Calif. Treasury bonds are negatively correlated to stocks, which is why investors should use them as a diversifier, he said. In addition, the so-called bond bubble is a myth, according to Mr. Gundlach. “Who here owns a Treasury bond fund?” he asked the crowd of 500, about half of whom were advisers, looking for a show of hands. “Maybe about 2% of the room. It's hard to say Treasury bonds are over-owned.” U.S. investors have more than 45% of their assets in equities, far more than they have in bonds, he added. And while many worry that the Federal Reserve's quantitative-easing program will lead to inflation, “I'm here to tell you that that point of view is dead wrong,” Mr. Gundlach said. Struggling economies and weak commodities prices don't indicate any short-time price pressures, he said. The Fed might inflate away some of the debt, but that scenario won't play out anytime soon, Mr. Gundlach added. In the meantime, get used to low rates. “I don't think rates necessarily need to rise,” he said, pointing to Japan, where rates have been in the basement since 1996. People seem more concerned about how to rejigger portfolios for when the Fed ends quantitative easing, but “that's the wrong question,” according to Mr. Gundlach. Instead, investors need to ask how to cope with ongoing low yields. Quantitative easing “is not going to stop … It will go on as far as the eye can see,” he said. Japan's new aggressive monetary policy is an interesting experiment to watch, Mr. Gundlach noted. Its level of quantitative easing is now 2½ times larger than the Fed's as a percentage of gross domestic product. Yields have gone down in Japan because, like in the U.S., central banks' bond buying “goes right through the heart of the [government] bond market,” he said. In addition to Treasuries, Mr. Gundlach likes BB- to BBB-rated corporate dollar-denominated emerging-markets debt. “You can get about 7% yields. I think those yields are too high, so there's profit potential,” he said And “it's absolutely certain that real estate will go higher [in the U.S.] from a lack of supply,” Mr. Gundlach added.