Gundlach: This Low-Risk Investment Mix Could Earn 7% Returns

What You Need to Know

Jeffrey Gundlach, who specializes in fixed income, recommends allocations of only 25% to stocks now.
The rest should be split among long Treasury bonds, high-quality fixed income investments and commodities, he suggests.
He warns against buying the handful of stocks that have fueled the market’s recent rise.

Jeffrey Gundlach, DoubleLine Capital founder, CEO and chief investment officer, recently recommended that investors adopt a relatively low-risk portfolio with significant fixed income allocations and limited equity exposure.

The allocations he recommended could yield about 7%, keeping investors ahead of inflation, Gundlach said on a UBS podcast recorded last week.

“Investors should be getting much more conservative, and I continue to favor a relatively balanced portfolio. When I say that, I don’t mean 60/40,” he said, referring to the traditional 60% stock, 40% bond portfolio. “I mean only about 25 or 30 percent equities and the same quantity or slightly more of bonds.”

Gundlach, known by some as the “bond king,” said his suggestions — a roughly 25%–25%–25%–25% portfolio — represent the allocations he favored about two years ago.

Specifically, Gundlach suggested a 25% allocation to 10-year and longer Treasury bonds, which he said could provide portfolio ballast; investors could reach 30% gains or higher on the 30-year bond and about half of that on 10-year bonds, he added.

He also recommended 25% in “cash-ish” holdings — other very high-quality fixed income investments, such as a low-duration bond fund, the DoubleLine Commercial Real Estate ETF (DCMB) or double- or triple-B fixed income, such as double-B floating-rate bank loans; or very high-quality commercial mortgage-backed securities.

Double- or triple-B fixed income can yield 7.5% or 8%, Gundlach said.

Gundlach said he was no longer interested in low-quality bonds, as he was about a year ago, and supports having “some risk” but not high-risk investments.