By Former Pimco “bond king” Bill Gross recently caused a stir at a California conference by questioning whether Jeffrey Gundlach manages enough money at DoubleLine to deserve his title. In response, Gundlach took the high road, dismissing the comment with a simple “Who? I just don’t care.” However, he did fire back, suggesting that it is strange for someone who has been out of the business for 10 years to continue trying to exorcise their demons.
Lost in the commotion, but perhaps more notable, were their investment ideas. Gundlach advocated for commercial mortgage-backed securities, floating-rate loans, and long-duration bonds. These suggestions made a lot of sense.
On the other hand, Gross revealed that 40% of his stock portfolio consists of master limited partnerships (MLPs). These MLPs primarily own oil and natural gas pipelines and tend to offer substantial dividends. For example, the Alerian MLP exchange-traded fund yielded 7.9% over the past 12 months, while Gross’s MLP holding, Energy Transfer, had an impressive dividend yield of nearly 9%. Another advantage of investing in MLPs is the ability to defer taxes on distributions until the MLP is eventually sold.
However, it’s important to consider the risks associated with MLPs. They were highly popular in 2014, marketed as “toll roads” that would consistently perform well. Unfortunately, that proved to be untrue, as the Alerian ETF experienced a 26% decline in 2015 and delivered an average annual return of just 0.7% over the past decade. Nevertheless, recent years have seen improved returns, with gains of 39% in 2021, 26% in 2022, and 15% so far this year.
It’s clear that there is more to focus on than just the back-and-forth between Gross and Gundlach. Their investment ideas have merit, and investors should carefully consider their options.
Markets
The week began with mixed results in the stock market, as tech stocks faced losses despite the introduction of the iPhone 15 by Apple. Consumer prices saw a slight increase in August, primarily driven by rising oil prices. Additionally, the IPO market showed signs of activity. However, auto workers went on strike, and a potential government shutdown posed concerns. Overall, the Dow industrials saw a marginal 0.12% increase, while the S&P 500 experienced a 0.16% decline, and the Nasdaq Composite dropped 0.39%.
Companies
Negotiations failed to reach a labor agreement, resulting in 27,000 United Auto Workers participating in walkouts at select General Motors, Ford, and Stellantis plants. Walt Disney and Charter Communications were able to resolve their cable-TV dispute through a new agreement. Meanwhile, the antitrust battle between the Department of Justice and Alphabet’s Google commenced in a federal court in Washington. According to The Wall Street Journal, Meta Platforms is also working on an artificial intelligence project to compete with OpenAI.
Deals
The IPO of SoftBank Group’s Arm Holdings unit priced at the top of its range. Shares rose, giving it a $65 billion valuation for now. Instacart, debuting this coming week, hopes for a valuation of $8.6 billion to $9.3 billion; Birkenstock filed, as well… J.M. Smucker announced a deal to buy Hostess Brands (think Twinkies) for $5.6 billion….U.S.-based WestRock agreed to a $20 billion merger with Ireland’s Smurfit Kappa, creating a global packaging powerhouse…Bloomberg reported that media mogul Byron Allen made a $10 billion bid for Disney’s ABC TV network and related assets.
Next Week
Wednesday 9/20
The Federal Open Market Committee announces its monetary-policy decision. Wall Street is nearly unanimous in expecting the FOMC to hold the federal-funds rate steady at 5.25% to 5.50%. By year end, there is roughly a 40% chance of a quarter of a percentage point rate increase, bringing the federal-funds rate to 5.50%-5.75% according to the CME FedWatch Tool.
A busy week for central banks around the globe continues with the Bank of England, Sweden’s Riksbank, and the Swiss National Bank all announcing their monetary-policy decisions. With European inflation proving more stubborn than most developed economies, those central banks are expected to raise their key interest rates by a quarter of a percentage point. In contrast, the Bank of Japan, which announces its decision on Friday, is seen keeping its target rate unchanged at negative 0.1%.
Friday 9/22
S&P Global releases both its Manufacturing and Services Purchasing Managers’ indexes for September. Consensus estimates are for a 47.8 reading for the Manufacturing PMI and a 50.3 reading for the Services PMI. Both figures are roughly even with the August data, reinforcing the fact that the services sector continues to hold up better than the manufacturing sector.
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