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Bond-Fund Star Gundlach Sees 'Big Loss' in Europe, U.S. Recession

BOSTON ( TheStreet) -- Star bond-fund manager Jeffrey Gundlach said he's avoiding investments with ties to Europe, given its precarious financial condition and muddled future.

Gundlach, the CEO and CIO of DoubleLine Capital, said his firm is invested only in U.S. dollar-denominated assets, according to a report in The Wall Street Journal, citing a talk at a financial conference in New York Wednesday.

"We're in a recession right now," Gundlach was quoted as saying in reference to the U.S. "I don't know what is going to happen. But I think there is going to be a big loss in Europe."

His comments come about a week after the International Monetary Fund sliced 1 percentage point off its U.S. growth forecast for the year and 0.4 of a percentage point from its Eurozone estimate. It pegged growth in the world's advanced economies at only 1.6% for the year, compared with the 2.2% forecast it made in June.

Gundlach manages about $12 billion for his firm. The biggest holding in his $10 billion DoubleLine Total Return Bond Fund (DBLTX) on Aug. 31 was a 3.8% weighting to the Fidelity Institutional Money Market Fund, according to Morningstar.

Other top holdings, all at around 2%, were the bonds of the Federal Home Loan Mortgage Corp., also known as Freddie Mac (FMC - Get Report), and the Federal National Mortgage Association, or Fannie Mae (FNM).

The DoubleLine Total Return Bond Fund has a 76% allocation to collateralized mortgage obligations (CMOs), which is 4.5 times that of other bond funds in its intermediate bond fund category.

But that bet is paying off as DoubleLine Total Return is up 8.8% this year and 10.6% over the past 12 months, putting the fund in the top 1% of performers in its category. That compares to a 6.3% increase this year in the benchmark Barclays U.S. Aggregate Fund Index through Sept. 28 and its 4.8% gain over the past 12 months.

Gundlach said his firm has done well on investment-grade corporate bonds this year, and he has avoided below-investment-grade bonds, which have performed miserably.

DoubleLine has $17 billion in assets under management, and its products include mutual funds, separate accounts and hedge funds. Gundlach founded the firm in December 2009. He was a highly successful bond fund manager in the preceding 15 years, on par with Pimco's Bill Gross.

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