(Adds details on investments, outlook, quotes)
By David Randall
LOS ANGELES, April 25 Home ownership rates in
the United States will likely fall to levels last seen in the
1980s as baby boomers retire and millennials wait longer to form
households, the manager of the DoubleLine Total Return fund said
Friday, recommending that investors short exchange-traded funds
focused on homebuilding companies.
"I recommend that you short the homebuilder ETF," Jeffrey
Gundlach told the Bel Air Advisors Next Generation Conference of
high-net worth individuals and their representatives. He did not
name a specific exchange-traded fund for investors to sell now
and buy back later at lower prices.
Stagnant incomes, high levels of student loan debt and
rising rents will combine to make it difficult for prospective
home buyers to acquire enough cash for a down payment, Gundlach
said. So-called micro-apartments and hotels would be a better
investment, he noted.
The $1.7 billion SPDR S&P Homebuilders ETF, one of
the largest funds that focus on the market, has gained
approximately 6 percent over the last 12 months, according to
Morningstar data. It closed down 2.2 percent on Friday, while
the iShares U.S. Home Construction ETF ended down 2.3
percent and the PowerShares Dynamic Building & Construction ETF
lost 1.6 percent.
Gundlach, whose $32 billion Total Return fund has returned
an annualized 6.1 percent over each of the last three years, has
been increasing his positions in long-duration U.S. Treasuries
and dollar-denominated emerging market debt, he said.
"The U.S. has vastly better demographic prospects than the
rest of the developed world," Gundlach said. That population
growth will allow the economy to expand and bring in tax
revenues to pay for entitlements and other government spending.
While yields of long-duration Treasuries are still low by
historical standards, they are much more attractive than any
other segment of the overall bond market, Gundlach said.
Corporate bonds and junk bonds "have never been more over-valued
in history" thanks to the Federal Reserve's bond-buying stimulus
program, which has sent interest rates to near zero and pushed
investors into riskier assets for income, he said.
Junk bonds currently make up only approximately 3 percent of
his diversified funds, and he has no assets in junk bonds in
many of his private accounts, Gundlach said.
Gundlach is bullish on dollar-denominated emerging market
debt, in part because these bonds, which often yield 8 percent
or more, are attractive to corporate pension plans attempting to
limit their risks after the stock market rally in 2013 put many
on firmer footing.
With growing populations and lower debt levels, emerging
market countries have better fundamentals than the developed
world, and their dollar-denominated bonds take away any currency
risk, he said.
While he is bullish on emerging markets overall, Gundlach is
wary about expectations that growth in China will reaccelerate.
The country is facing demographic pressures from its one-child
policy, leaving it "overdue" for a correction that will in turn
contract its economy, Gundlach said.
Investors should wait to buy the Shanghai index until at
least it breaks above the 2,400 level, he said. The index closed
at 2,036.52 on Friday.
(Reporting by David Randall, with additional reporting by
Ashley Lau; Editing by Meredith Mazzilli, Linda Stern and Dan