Bryan Whalen of TCW Group Inc. is still adhering to a trading strategy that most on Wall Street have abandoned.

He believes that the Federal Reserve's high interest rates will inevitably impact the economy, and when economic growth stagnates, as the Federal Reserve accelerates rate cuts, Buy short-term US Treasury bonds and short sell corporate Bonds will ultimately yield returns.

The Chief Investment Officer of TCW's fixed income department stated, "We always convict trades too early; historical experience indicates that even if the performance is poor in the short term, there will definitely be returns in the long term."

Recently, the performance of this strategy has been deteriorating. Whalen's flagship fund, Metropolitan West Total Return Bond Fund, has underperformed 87% of its competitors this year, and the fund has been in a loss state since the surge in inflation post-pandemic and the Federal Reserve's interest rate hikes, with a three-year ROI trailing 85% of its peers.

As a result, investors are rushing to exit. According to Morningstar Direct, in the past 12 months, clients have withdrawn nearly $18 billion, surpassing the outflows of any other actively and passively managed Bond mutual funds. Since 2021, investors have cumulatively pulled out $41 billion from the fund.

Whalen and his team do not yield. He says that his clients believe it is worthwhile to allocate some funds to a "value-oriented, contrarian investment, fundamentally driven fund manager."

At the end of last year, Whalen and others in similar situations came close to succeeding. When US Treasury bonds surged due to market expectations of Federal Reserve rate cuts, his fund rose nearly 6%.

However, as the economy continues to perform strongly despite doomsday predictions, the rise of US Bonds has stagnated, and Whalen's trading strategy has once again faced a setback. The result is another wave of capital outflow, exceeding the scales of Western Asset Management, Pimco, and DoubleLine.

As of September 30, the fixed income assets managed by TCW have decreased from 189 billion USD at the end of 2023 to 179 billion USD.

Bryan Whalen of TCW Group Inc.

Now the pendulum has swung back to speculation that the Federal Reserve will maintain high interest rates, and Trump's tax cut plan is expected to further increase market uncertainty regarding the interest rate path. The futures market is digesting the possibility that the Federal Reserve will pause monetary easing after a 25 basis point rate cut this week.

Whalen said, "The market predicts that the federal funds rate will basically stay at or slightly below 4% by the end of next year. We believe that interest rates still have a restrictive nature, and it feels like the economy cannot sustain itself at restrictive interest rates for another 12 months."

Market pricing indicates that the Federal Reserve is expected to lead the US economy towards a soft landing, similar to the mid-1990s.

However, given the lagging effect of interest rates on the real economy, Whalen remains skeptical about the soft landing prospects and has reduced exposure to CSI Enterprise bond Index risk, favoring mortgage bonds and short-term USA Treasury bonds.

He said, "When you raise interest rates as quickly as the Federal Reserve and other Global central banks do, it's not as simple as just pressing a switch to turn it off."

Whalen stated that ultimately, interest rates will take effect and begin to have a greater impact on the USA economy.