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Follow Gundlach's Insight with These ETFs

Investing ideas of bond master Jeffrey Gundlach – the founder of DoubleLine Capital LP – can lead to a dream portfolio. As per an article published on Bloomberg, Gundlach appropriately predicted Donald Trump’s chances of winning the U.S. presidential election. His predictions at last year’s Sohn conference, which bids ace Wall Street investors to share their expertise, even returned 40%.

Needless to say, such an enthralling investing career and perceptive investment calls make it important to follow what Gundlach is saying now about the broader investing world. Below we highlight a few such calls and their adjoining ETF picks for investors who are a fan of Jeffrey Gundlach.

Looming Summer Market Correction?

Gundlach sees puffiness in U.S. stock valuation compared with GDP. The cyclically adjusted valuations also seem to be stretched. With the U.S. GDP data in the first quarter hovering at a three-year low, this warning does make sense.

Gundlach expects the 10-year Treasury yield to scale higher in the coming days and if interest rates rise in summer, the gradual cease in cheap money inflows will likely thwart the stock market rally.

In this light, inverse S&P 500 ETFs like Direxion Daily S&P 500 Bear 1x Shares ETF SPDN, ProShares Short S&P500 ETF SH and ProShares UltraShort S&P500 ETF SDS are likely to gain ahead. And if U.S. Treasury yields continue to rise in the summer months, inverse bond funds like ProShares Short 20+ Year Treasury TBF may prove to be gainful too (read: Why India ETFs are Soaring in 2017).

Prefer Abroad to Home

Gundlach is long on emerging market (EM) equities despite “conventional wisdom that rising U.S. rates will lead to a stronger dollar” and a stellar year-to-date rally in the EM stocks. That the Fed’s rate hike policies are likely to catapult the U.S. dollar appears as a ‘myth’ to Gundlach, going by the Bloomberg article.

So, investors can play the theory by investing in the funds like iShares Core MSCI Emerging Markets IEMG. He also prefers Europe equities to the U.S. ones. Upbeat economic fundamentals and less-than-expected political upheavals on the other side of the pond are probably in tandem of Gundlach’s view (read: French Election Soothes Sentiments: ETFs Likely to Benefit).

Oil to Slip Further?

Gundlach also expects oil prices to slide over the longer term due to better technology for oil extraction. In any case, oil prices are reeling under pressure this year thanks to brimming shale output despite the ongoing OPEC output cut deal.

If this holds true, inverse oil and energy ETFs like ProShares UltraShort DJ-UBS Crude Oil ETF SCO, ProShares Short Oil & Gas ETF DDG and ProShares UltraShort Oil & Gas ETF DUG may come to investors’ rescue (read: Oil at Pre-OPEC Level: ETFs to Benefit).

Gold to "Have Another Leg Up"?

As we all know, gold is often viewed as a safe-haven trade and performs well in equity market correction. Agreed, the metal is stressed when the dollar is rising, but Gundlach doesn’t see enormous strength in the currency in the Fed policy tightening cycle (read: Trump's First 100 Days: 5 Must See ETF Charts).

Probably this is why Gundlach sees chances of a rebound in gold in the coming days. Investors should note that SPDRÂ Gold Shares GLD was down 4.3% in the last one month (as of May 10, 2017) as the equity market is upbeat. But investors may buy the dip if they want to follow Gundlach’s calls.

Can Active Managers See Bright Days Ahead?

Actively managed funds underperformed passive funds in the recent past, but Gundlach indicated that “when emerging markets outperform the S&P 500, active is outperforming the S&P 500.” Since the border EM indices are surpassing the S&P 500, chances of outperformance are going higher for active ETFs.

If this is the case, investors can take a look at some red-hot active ETFs like ARK Innovation ETF ARKK (up 10.4% in the last one month), First Trust RiverFront Dynamic Europe ETF RFEU (up 7.2% in the last one month) or Davis Select Worldwide ETF DWLD (up 5.9% in the last one month).

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SPDR-GOLD TRUST (GLD): ETF Research Reports
PRO-ULSH S&P500 (SDS): ETF Research Reports
PRO-ULS BB CRUD (SCO): ETF Research Reports
PRO-SH OIL&GAS (DDG): ETF Research Reports
PRO-SHRT S&P500 (SH): ETF Research Reports
PRO-ULS OIL&GAS (DUG): ETF Research Reports
DIR-D SP5 BR (SPDN): ETF Research Reports
PRO-SH 20+ TBI (TBF): ETF Research Reports
FT-RF DYN-EUR (RFEU): ETF Research Reports
ISHARS-CR MS EM (IEMG): ETF Research Reports
DAVIS-SEL WW (DWLD): ETF Research Reports
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Zacks Investment Research
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