DoubleLine CEO Jeffrey Gundlach has slashed the firm's gold allocation after the precious metal hit "nosebleed levels" and he recommends investors rebalance their portfolios, trimming assets that have reached those heights.
Appearing Wednesday on CNBC, he indicated he's moved to about 10% exposure to gold and 5% in other commodities — through a commodity index — from previously suggesting 25% in gold or other hard assets, and predicted a further gold correction.
"I have reduced my interest in gold once we got above 4,000," he said. "All year I've been talking about kind of a radical prediction that gold would go over $4,000, and it went up to almost $4,400, which is really nosebleed levels."
Gundlach, who is also DoubleLine's chief investment officer, cited a service that measures investment sentiment for certain categories, "and you almost never get a bullish reading that's above the low 90s, but the gold reading a couple weeks ago was at 95, which is just unheard of."
Previously, Gundlach talked about having a 25% portfolio in gold or other hard assets, which is high compared with most people's recommendations, "but it worked out pretty well. But I don't hold that any longer," he said.
Reinforcing advice from another market commentator, the CEO said, "You really want to think about rebalancing. Rebalancing is a very powerful tool. So you want to take things that are at nosebleed levels — like gold was a couple weeks ago ... if you had 25% gold it probably turned into 35% of your portfolio — it was time to rebalance back down. Right now I think gold has to correct further."
Gold has seen about a 40% or 50% correction of its big runup, he added.
"I still like 45% in stocks. You'd probably be higher than that now. You have to rebalance that because stocks have outperformed bonds," he said, suggesting dollar-based investors should buy emerging market equities. "I still like that. And I like non-U.S. equities from a valuation perspective quite a lot. I like 25% in bonds and it's the same game plan that we've been talking about.
"It's been working pretty much through the course of this year, and that's intermediate-term bonds, maybe two years out to 10 years with more in the five years than the 10 years but also not a lot of long-term Treasury bonds. We own very, very little of long-term Treasury bonds, we think the (yield) curve is going to steepen," Gundlach said.
DoubleLine also likes asset-backed securities and some commercial mortgage-backed mortgage-backed securities, which Gundlach said the market is starting to accept. That includes office commercial mortgage-backed securities, a "reasonably cheap" category.
The CIO also suggested keeping 15% in cash because "things are at a very aggressive level," not just gold. He noted "very narrow" breadth in the stock market.
"There's nothing super cheap in the entire financial markets right now," he said.
Ilustration: Chris Nicholls/Touchpoint Markets; courtesy photo
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