New York (HedgeCoVest) – Jeffrey Gundlach, founder of DoubleLine Capital, issued a warning to bond fund investors on Tuesday, stating that they may not get what they were expecting. In particular Mr. Gundlach called out the unconstrained funds which are developed specifically for a period of rising interest rates.

In an interview with InvestmentNews, Gundlach stated, “What’s going to happen is that unconstrained investors are going to find themselves disappointed. I think they will be surprised that they are actually doing worse in many of these funds — in 2015, as interest rates are rising — they’re doing worse than they would in an index fund.”

Mr. Gundlach is also concerned about the amount of risk being taken on by these funds as one popular trade is to short treasuries and selling anything short comes with risk and interest on the short sell takes away from the investors returns. Many times the short-treasury trade is accompanied by a bullish trade on high-yield or junk bonds. He described the trade as an “unacceptably high commitment to credit risk” that’s “long credit risk and short safety.”

Rick Pendergraft
Research Analyst
HedgeCoVest