How should you play this Jekyll-and-Hyde market, which appears headed somewhat higher but also harbors significant risks? For starters, recognize that certain bonds (not Treasuries) will probably perform better than most stocks during the middle months of this year and perhaps quite a bit longer, depending on how the tax battle gets resolved.
I’m thinking particularly of the mortgage bonds that skipper Jeffrey Gundlach has stuffed into his DoubleLine Total Return Bond Fund (MUTF:DLTNX). If, in fact, U.S. home prices are bottoming out (as the cheerleaders insist), mortgage bonds could notch substantial gains in the months ahead as defaults and foreclosures subside.
What’s more, even if housing activity and prices don’t improve a whole lot in the near future (as I’m inclined to assume), government support will likely keep mortgage securities from falling very far — this year, anyway. In a pinch, Bernanke & Co. would almost certainly buy additional mortgage-backed securities to pad the Federal Reserve’s existing $835 billion hoard.
Meanwhile, DLTNX is yielding a cool 7.9% based on the fund’s dividends for the past 12 months. That’s about the same return I’m projecting for the marquee stock indexes over the next year — and DLTNX boasts a much steadier share price than any of the popular stock index funds.
Buy DLNTX this month before you put another dime into stocks.
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