Long-term bonds, utility stocks, real estate investment trusts and other interest-sensitive investments tumbled the last few months. But not all income investments lost a lot of value recently, asserts Bob Carlson, income expert and editor of Retirement Watch.
Jeffrey Gundlach of DoubleLine Total Return Bond (DBLTX) expected rates to rise after reaching lows in July.
In public appearances, he said that the interest rate levels of July were likely to be the lows for a considerable time.
He had the fund prepared for higher rates. Despite the volatility in interest rates and bonds the last few years, the fund’s value has been very stable. The recent yield was 3.68%.
Most of the fund is split between agency mortgage securities and non-agency mortgage securities. The non-agency mortgages aren’t insured by one of the quasi-federal agencies, such as Fannie Mae, while the agency securities are insured.
For several years, the fund has been about half in the agency mortgage securities and 20% in the non-agency securities. The agency securities tend to be short-term and pay low yields.
The non-agency securities were purchased at substantial discounts to face value from distressed sellers. They generate a lot of cash from mortgage payments and prepayments and can fluctuate a lot with interest rates.
Cash is up to 12% of the fund. With the rest of the fund, Gundlach moves in and out of relatively small positions in different income investments when he believes there are values and opportunities.
The fund is likely to remain conservatively invested, since Gundlach says rates are likely to rise in the next few years.
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By Bob Carlson, Editor of Retirement Watch
