Pick: Mortgage Bonds
When Jeff Gundlach launched DoubleLine (DBLTX) in 2009, after two decades as a bond star at TCW (where his flagship fund returned an annualized 7.2% over 16 years), investors ignored headlines about his breakup with TCW and flooded into his new fund. Gundlach hasn't disappointed, with a 14.3% annualized return, beating 97% of competitors. Now he thinks we're in the midst of "a large socioeconomic shift" that could result in inflation -- or deflation. To weather that uncertainty, Gundlach is employing a barbell strategy of sorts. Part one: He's buying battered, deeply discounted prime and Alt-A mortgage bonds -- ones not backed by the government -- which he thinks will perform well if inflation strikes (since it will raise the value of the houses supporting the mortgages). Part two: He's acquiring mortgage securities that are backed by Fannie Mae and its siblings because, in the event of deflation, he thinks such federally guaranteed bonds will benefit from a flight to quality. "Those types of asset mixes that are very nontraditional are the only way to win in fixed income," Gundlach says. It's one strategy better left to a professionally managed portfolio.
--K.B.
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