When Jeffrey Gundlach speaks, investors listen. I’ve been listening to the DoubleLine Capital CEO/CIO for years, as he’s one of the smartest men on Wall Street. And after correctly predicting both a Donald Trump presidential victory, and the subsequent post-election Trump equity rally, Gundlach is making a different call today … one that involves short selling the S&P 500 and buying emerging markets.
This “short home, long abroad” strategy was revealed this week by Gundlach at the Sohn Investment Conference in New York. The DoubleLine chief, also known as “The New Bond King,” recommends investors should short the S&P 500 Index via the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) while also buying the iShares MSCI Emerging Markets ETF (NYSEARCA:EEM).
Here’s the rationale straight from Gundlach as written in MarketWatch:
“The valuation of emerging markets is half the valuation of the S&P 500 when you look at things like price to sales, price to book,” said Gundlach in an interview with CNBC after his Sohn presentation.
Gundlach said a strong dollar has underpinned weakness in emerging-market equities but said the dollar’s strength has tapered lately and may not strengthen significantly, even as the Federal Reserve embarks upon a path of monetary-policy tightening.
That means Gundlach doesn’t think much of the upside potential of the greenback, or the upside potential for stocks in the broadest measure of the domestic market (i.e., the S&P 500).
So, if you want to play follow the leader and buy what Gundlach recommends, but you don’t want to get into the business of short selling stocks or ETFs directly, how do you do it?
The answer is easy, and it involves just a few targeted ETFs.