View as:
View as:

Transcript Bizarro Year

With: Jeffrey Gundlach, CEO and CIO, DoubleLine Capital Portfolio Manager, Litman Gregory Masters Alternative Strategies Fund

Date: November 14, 2019

Jeffrey Gundlach: But this year is a really bizarro year. You get the impression that everything’s just so incredibly strong. Like corporate bonds are up double-digits. Junk bonds are doing great. Stocks are up 20%-plus all over the world.

Jeremy: Treasuries are up.

JG: Treasuries are up massively. It’s all just because of the arbitrary nature of the start date.

If you use the start date of October 3rd of 2018 or if you use January 26th of 2018, not a lot has happened. Not a lot has happened. I mean the global stock market is down from January 26th of 2018.

The NYSE Composite (New York Stock Exchange Composite Index) is down from January 26th of 2018. We’re at minor new highs in both October 3rd. But if you actually look at junk-bond returns for 18 months, they’re pretty bad. The lower tiers of junk bonds – the triple-Cs – are doing the worst of the entire bond market, which is really strange on the year-to-date basis.

Usually when stocks are up 25%, you’d expect triple-Cs to outperform every other class. But they’re not. They’re actually down in price on a year-to-date basis, which is kind of surprising.

I think it shows that the so-called bond-vigilantes aren’t as dead as people think. I think bond market people realize that when the next cycle comes, the carnage in the corporate bond market is going to be very severe.

I think weighting should be very, very low. One of these days, we’re going to be buying them probably at $0.40 on the dollar. Because that’s where they’re going to go.

Jeremy: In your view, as you’d expressed it before, that’s where the next –

Corporate credit is where the next bond crash is happening?

JG: Sure. It’s got an echo of what was wrong with the mortgage market.

Jeremy: That’s a fairly-consensus view of other fixed-income managers.

JG: It’s hard to argue the counterpoint, because the size of the market has doubled since 2006. The ratings are terrible. The covenants are non-existent. There’s a survey – a study – that was done by Morgan Stanley about a year ago now, that suggested if they used leverage-ratio more primarily at the rating agencies – and I think you should, because leverage ratio means a lot to creditworthiness of a corporation – about a third of the investment-grade corporate bond market should be rated, “junk,” right now. Right now.

Pretty clearly, when the rating of the corporate bond goes from triple-B to single-B, the price doesn’t go up.

Stay Informed

iMGP Funds emails provide investors a way to stay in touch with us and receive information regarding the funds and investment principles in general. Topics may include updates on the funds and managers, further insights into our investment team’s processes, and commentary on various aspects of investing.


Each fund’s investment objectives, risks, charges, and expenses must be considered carefully before investing. The prospectus and summary prospectuses contain this and other important information about the investment company, and it may be obtained by calling (800) 960-0188 or visiting Please read it carefully before investing.

Each of the funds may invest in foreign securities. Investing in foreign securities exposes investors to economic, political, and market risks and fluctuations in foreign currencies. Each of the funds may invest in the securities of small companies. Small-company investing subjects investors to additional risks, including security price volatility and less liquidity than investing in larger companies. The International Fund will invest in emerging markets. Investments in emerging market countries involve additional risks such as government dependence on a few industries or resources, government-imposed taxes on foreign investment or limits on the removal of capital from a country, unstable government, and volatile markets. The Alternative Strategies Funds will invest in debt securities. Investments in debt securities typically decrease when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in mortgage-backed securities include additional risks that investor should be aware of including credit risk, prepayment risk, possible illiquidity, and default, as well as increased susceptibility to adverse economic developments. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. The Alternatives Strategies Fund will invest in derivatives. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management, and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The Alternative Strategies Fund may make short sales of securities, which involves the risk that losses may exceed the original amount invested. Merger arbitrage investments risk loss if a proposed reorganization in which the fund invests is renegotiated or terminated. Leverage may cause the effect of an increase or decrease in the value of the portfolio securities to be magnified and the fund to be more volatile than if leverage was not used. Investment in absolute return strategies are not intended to outperform stocks and bonds during strong market rallies.

Diversification does not assure a profit nor protect against loss in a declining market.

A basis point is a value equaling one on-hundredth of a percent (1/100 of 1%)
A Below Investment Grade bond or Junk Bond is a bond with a rating lower than BBB
The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.
Curve Steepener A strategy that uses derivatives to benefit from escalating yield differences that occur as a result of increases in the yield curve between two Treasury bonds of different maturities. This strategy can be effective in certain macroeconomic scenarios in which the price of the longer term Treasury is driven down.
Drawdown is the peak-to-trough decline during a specific record period of an investment, fund or commodity.
Gross Domestic Product (GDP) is the market value of the goods and services produced by labor and property in the United States.
A Leverage Ratio is any one of several financial measurements that look at how much capital comes in the form of debt (loans) or assesses the ability of a company to meet its financial obligations. 
The NYSE Composite Index is an index that measures the performance of all stocks listed on the New York Stock Exchange. The NYSE Composite Index includes more than 1,900 stocks, of which over 1,500 are U.S. companies.
The Purchasing Managers’ Index (PMI) is an index of the prevailing direction of economic trends in the manufacturing and service sectors. It summarizes whether market conditions, as viewed by purchasing managers, are expanding, staying the same, or contracting. 
Quantitative Easing (QE) is a monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.
Quantitative tightening (QT) is a contractionary monetary policy applied by a central bank to decrease money supply within the economy. 
A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. That small difference in price is the implicit overnight interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations.
Yield Curve: A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. The curve is used to predict changes in economic output and growth.

Mutual fund investing involves risk. Principal loss is possible.

Opinions expressed are subject to change at any time, are not guaranteed & should not be considered investment advice.

Litman Gregory Fund Advisors, LLC has ultimate responsibility for the performance of the iMGP Funds due to its responsibility to oversee the funds’ investment managers and recommend their hiring, termination, and replacement.

iMGP Funds are distributed by ALPS Distributors Inc. LGM000878 exp. 12/20/2020