Warning: No repeat for stocks this year

Betting against Treasuries risky, caution needed with funds buying junk bonds, shorting government debt
JAN 14, 2014
The U.S. stock market won't repeat last year's 32% return in 2014, according to DoubleLine Capital's Jeffrey Gundlach. Should bond buying by the Federal Reserve be reduced, it makes sense that its support of the stock market would be taken away, Mr. Gundlach said Tuesday on a conference call with investors. The S&P 500 rose 1.1% to 1,838.88 Tuesday, posting its biggest gain of the year. The Fed will probably end its monthly asset purchases by the end of this year while keeping short-term interest rates low into 2016, said Mr. Gundlach, whose firm had about $52 billion in assets as of Sept. 30. Long-term bonds won't do “that badly” on a yield basis even as they fall out of favor, he said. Investors should keep in mind that betting against U.S. Treasuries could backfire if there's any economic weakness. They also should be cautious with funds that have been buying junk bonds and shorting government debt, according to Mr. Gundlach. He said Treasuries look cheap relative to municipal bonds and high-yield securities, or those rated below Baa3 by Moody's Investors Service and less than BBB- by S&P. For those who can stomach the volatility, Puerto Rico and J.C. Penney Co. bonds may be worthwhile, Mr. Gundlach said. Mr. Gundlach's $31 billion DoubleLine Total Return Bond Fund (DBLTX) lost $6 billion to redemptions last year, according to estimates by Morningstar Inc. It returning 0.02%, ahead of 80% of peers, according to data compiled by Bloomberg. All of the money put into U.S. bond mutual funds in 2012 is likely to be pulled by the end of this year after withdrawals started in 2013, said Mr. Gundlach. (Bloomberg News)

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