Gundlach says passive investing has reached ‘mania’ status

DoubleLine Capital CEO Jeffrey Gundlach took a shot at passive investment strategies such as index funds on Monday, declaring the investing strategy a “mania” that is causing widespread problems in global stock markets.

“I’m not at all a fan of passive investing. In fact, I think passive investing … has reached mania status as we went into the peak of the global stock market,” Gundlach said, speaking with CNBC’s Scott Wapner on “Halftime Report” in Los Angeles.

“I think in fact that passive investing and robo advisers … are going to exacerbate problems in the market because it’s hurting behavior,” Gundlach added.

Gundlach’s DoubleLine actively manages clients money and has more than $120 billion in assets under management, according to the firm’s website.

Index funds are one of the more popular ways to invest in stocks for many investors. Money has flooded into index funds and exchange-traded funds during this bull market, while active strategies have suffured. The market for ETFs to ballooned to $5 trillion since the SPDR S&P 500’s inception in 1993. Investors shrugged at the recent recession fears and economic concerns, adding more than $16 billion to U.S.-listed ETFs in the week ending Dec. 13, according to FactSet.

“I wouldn’t advise anyone to be a passive investor,” Gundlach said. “My strongest advice is to not invest in passive U.S. equity funds.”

He said his best idea for 2019 is “capital preservation.” Gundlach defines that as “high quality, lower volatility, lower duration bond funds” he said.

On the flip side, Gundlach said “the worst thing you can do is what everybody has done: Crowd into S&P 500 index funds because that’s the most expensive market.”

He believes the S&P 500 will break below its February lows eventually and is in a bear market.

The investor made correct predictions for 2018, including a drop in stocks on rising yields and declines in Facebook and bitcoin. He thinks the stock market is headed lower next year, calling for the S&P 500 to fall below the lowest level it hit this year.