In a recent California conference, former Pimco “bond king” Bill Gross made headlines by challenging Jeffrey Gundlach’s title as a successful money manager at DoubleLine. While Gundlach initially brushed off the comment, he retaliated by questioning Gross’s relevance in the industry after being out of the business for 10 years. Lost in the drama, however, were their investment ideas.
Gundlach presented investment opportunities in commercial mortgage-backed securities, floating-rate loans, and long-duration bonds, all of which seemed logical and promising. On the other hand, Gross revealed that 40% of his stock portfolio is invested in master limited partnerships (MLPs), which primarily own oil and natural gas pipelines and offer substantial dividends. For instance, Energy Transfer, one of Gross’s MLP holdings, boasts a dividend yield of nearly 9%.
MLPs come with the benefit of tax deferral on distributions until the MLP is sold, which could be many years down the line. However, investors should approach MLPs with caution. They were popular in 2014 when energy prices were rising, with promises of consistent returns akin to “toll roads.” However, they proved to be less stable, with the Alerian MLP exchange-traded fund experiencing a decline of 26% in 2015. Over the past 10 years, it has only provided an annual return of 0.7%. Despite its rocky past, MLPs have performed better recently, with returns of 39% in 2021, 26% in 2022, and 15% this year.
While the debate between Gross and Gundlach may have grabbed headlines, it was their investment ideas that offered valuable insights. Gundlach’s suggestions align with market trends and potential opportunities, while Gross’s focus on MLPs underscores the appeal of high dividend yields and tax benefits. Investors should carefully consider their risk tolerance and conduct thorough research before diving into MLP investments. The recent performance of MLPs suggests that they may indeed offer profitable opportunities, but past volatility serves as a reminder of the need for caution. Ultimately, it is these investment ideas that should take center stage, rather than the name-calling between Gross and Gundlach.
In terms of market updates, last week saw a mixed opening for stocks as tech shares fell despite Apple’s unveiling of the iPhone 15. Headline consumer prices in August showed a slight increase, primarily due to rising oil prices. The IPO market also showed signs of activity, but it was marked by negative factors, such as auto workers walking out and the threat of a government shutdown. At the end of the week, the Dow industrials ticked up by 0.12%, the S&P 500 fell by 0.16%, and the Nasdaq Composite dropped by 0.39%.
Some notable company news included failed labor negotiations, resulting in 27,000 United Auto Workers going on strike at selected General Motors, Ford, and Stellantis plants. Additionally, Walt Disney and Charter Communications resolved their cable-TV dispute with a new agreement. The antitrust clash between the Department of Justice and Alphabet’s Google began in federal court, and Meta Platforms revealed its plan to develop an artificial intelligence project that would rival OpenAI’s technology.
Looking ahead, the Federal Open Market Committee will announce its monetary policy decision on Wednesday, with most experts anticipating a steady federal funds rate. European central banks, including the Bank of England, Sweden’s Riksbank, and the Swiss National Bank, are expected to raise their interest rates due to stubborn inflation. The Bank of Japan, however, is likely to maintain its target rate unchanged at negative 0.1%. S&P Global will release its Manufacturing and Services Purchasing Managers’ indexes for September on Friday, with estimates suggesting similar figures to August, indicating the continued resilience of the services sector compared to manufacturing.
The controversy between Gross and Gundlach may have entertained the media, but it is their investment ideas that are worth considering for investors. The performance of MLPs and the opportunities presented by Gundlach provide valuable insights for those seeking to navigate the ever-changing investment landscape.