Jeff Gundlach vs. Bill Gross? The 'unconstrained' bond fund debate

Jeffrey Gundlach, CEO of DoubleLine Capital, is betting that the best way to play the coming rate hikes is by holding lots of mortgages.
Harriet Taylor | CNBC

Big money managers have a warning for people using popular new investment products.

One that attracted the ire of speakers at the Milken Institute Global Conference in Los Angeles on Tuesday were so-called unconstrained or go-anywhere bond funds, a popular strategy that places few limits on what types of bonds the mutual fund manager can invest in.

Bond guru Bill Gross, most recently of Janus Capital and before that founder of fixed income giant Pimco, started just such a fund in 2014. He was not mentioned by any of the speakers, but the fund category itself was skewered.

"The go-anywhere, the unconstrained, is the pitch de jour. I think that ends badly," John Skjervem, chief investment officer of the Oregon State Treasury, said at the event.

"There are asset owners that are going to buy that and present it to their boards as fixed income and it will show up in that pie chart as fixed income and everyone is going to assume it's capital preservation," Skjervem explained. "But under the hood it's all risk seeking and I don't think that ends well."