NEW YORK (Reuters) - Jeffrey Gundlach, chief executive of investment firm DoubleLine Capital, said Puerto Rico municipal bonds represent about 1 percent of his DoubleLine closed-end fund.
In an investor call on Tuesday, Gundlach said Puerto Rico is not a “big bet” for the $2.2 billion DoubleLine Income Solutions Fund. Puerto Rico bonds, which carry triple-tax free status, have traded at distressed levels for more than a year amid speculation the commonwealth and its agencies will not be able to repay some $70 billion of debt.
Gundlach said he expects Puerto Rico general obligation bonds will experience volatility but investors will likely be paid back at par. He also doesn’t count out a restructuring process with investors paid back at a “very high price,” though the restructuring is not DoubleLine’s base case, he said.
“I know it is not for everyone but it is one of the more interesting plays,” Gundlach said about Puerto Rico munis.
Gundlach did purchase some pension obligations Puerto Rico munis two weeks ago with a yield of 6.2 percent at 37.5 cents on the dollar, but not for the DoubleLine Income Solutions Fund. Overall, “I hope Puerto Rico munis go lower so I can buy more,” he said.
He also added that recent headlines about him being negative on junk bonds are greatly exaggerated. “I am not expecting a disaster in the high-yield market this year and next year,” he said. In fact, DoubleLine was a buyer of junk bonds during the latter part of 2014 and in January.
Gundlach is widely followed for his bold and prescient investment calls. Last year, he correctly predicted that U.S. Treasury yields would fall, not rise as many had forecast, because inflationary pressures were non-existent and technical factors, including aging demographics, were at play.
DoubleLine is based in Los Angeles, and had $73 billion in assets under management as of March 31.
Reporting By Jennifer Ablan; Editing by Diane Craft and Andrew Hay