A star bond fund PM-turned-entrepreneur is again attacking index funds, but this time it's while the stock market is going down.

Jeffrey E. Gundlach DoubleLine Capital CEO

"Passive investing is a mania," Jeffrey Gundlach, CEO of DoubleLine Capital [profile], said yesterday on the "Fast Money Halftime Report" on CNBC. "I think, in fact, that passive investing and robo-advisors, which I think tie together, are going to exacerbate problems ... because it's hurting behavior."

"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," Gundlach added. "So my strongest advice is not to invest in passive U.S. equity funds."

Gundlach, who was speaking from DoubleLine's Los Angeles headquarters, was singing a favorite tune of his, yet this time it's with the backdrop of tough times in the markets. Indeed, earlier on the show Gundlach called a bear market.

For fundsters looking for product development ideas, or wondering what to push, Gundlach is encouraging investors to focus on capital preservation above all else, and maybe a little commodities.

In addition to a host of other topics, Gundlach also wondered aloud about the contradiction that, while passive U.S. equity funds have been winning big inflows this year, active unconstrained U.S. bond funds have also been popular.

"It is weird you can live in a world where two diametrically opposed ideas are extraordinarily simultaneously warmly embraced: passive in equity, and not just active in bonds, but uber active, right?" Gundlach said. "In the '90s people loved passive bonds and they loved active equities. And now 25 years later, it's exactly flipped and as night follows day mark my words it will flip back again." 

Edited by: Neil Anderson, Managing Editor


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