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NEW YORK (Reuters) - DoubleLine Capital LP Chief Executive Jeffrey Gundlach on Wednesday warned that increasing investor demand for ostensibly safe low-volatility stocks and utility stocks is a major risk facing markets.
The closely watched investor, speaking at the Sohn Investment Conference, also said investors should prepare for a Donald Trump presidency, an election result that could lead to higher government debt.
Trump's support for infrastructure spending and desire to amp up job growth could lead to higher debt, Gundlach said.
He said utilities offer only a "puny" yield compared with those of mortgage real estate investment trusts, which he recommended buying.
Buying baskets of low-volatility stocks has been one of the most popular investment strategies using exchange-traded funds.
"Talk about an oxymoron - low volatility equities," he said, calling them the "flavor of the month." "Trust me, you want to get in front of that risk before it comes home to roost."
Two funds employing that strategy - iShares MSCI USA Minimum Volatility ETF USMV.P and PowerShares S&P 500 Low Volatility Portfolio SPLV.P - have taken in some $7 billion in new money from investors over the one-year period that ended April 27, according to Lipper.
Gundlach spoke at the annual charitable event before some 3,000 hedge fund managers and investors at Lincoln Center's David Geffen Hall in New York.
Gundlach reiterated his view that negative and low interest rates on bonds, especially in Europe and Japan, are deflationary and do not promote growth.
"Trying to fight deflation with deflation is like trying to put out a burning house by pouring gasoline on it," he said.
Los Angeles-based DoubleLine managed more than $84 billion as of Dec. 31, 2015.
Additional reporting by Svea Herbst-Bayliss, David Randall and Sam Forgione; Editing by Steve Orlofsky