00:00Joining me now, Jeremy Schwartz, Global Chief Investment Officer at WisdomTree.
00:03Jeremy, thanks so much for joining me at the desk.
00:05It's a pleasure to be here. Thanks for having me.
00:07So, Jeremy, we're talking about turning global volatility into opportunity.
00:12I want to talk about some of the things causing that volatility,
00:15namely geopolitics and trade, and, of course, interest rate policy.
00:20But before we get to that, I want to ask you about gold,
00:22because gold continues its run higher,
00:25we're continuingly hitting record highs, trading above 41.50 an ounce right now.
00:30Some might look at it as a hedge against volatility, as a means of diversification, a safe haven.
00:36How much of it is that, and how much of it is geopolitics driving this run higher,
00:42and are we nearing the top?
00:44You've got a name for the trade at the moment called the debasement trade.
00:47It's going around the desks this week as people talk about the debasement trade on,
00:52what is really driving this gold price higher.
00:54You know, gold has had a very unique role.
00:56It's been one of the monetary assets used for thousands and thousands of years.
01:00People look at it as a store of value.
01:02Now, you have crypto as Bitcoin, the new digital gold, and a hedge.
01:07And we talk about, if you look at just the last week,
01:10and sort of the sell-off in crypto over the weekend,
01:13all these leveraged trades on, and there's a huge crashdown in crypto.
01:17So, was it a safe haven hedge the way people are thinking about that?
01:20And it's hard to argue that case.
01:23But gold has a different role as a ballast in some of this long-term purchasing power protection.
01:29I've done research with Professor Jeremy Siegel at Wharton.
01:32He has 200 years of data.
01:33And gold kept up with inflation over 200 years,
01:36like basically provide protection from inflation over different periods as better returns.
01:41But I think it is a useful hedge asset from that purchasing power perspective.
01:46Do you think it can continue its run higher, though?
01:49Because we have seen such impressive gains,
01:51at the same time that the market has been gaining as well.
01:54This year has been very hot.
01:56The last few years it's been hot.
01:58I do think it has a role.
01:59You're finding central banks saying,
02:01you know, maybe I don't want to just have all my money in dollars.
02:04Maybe I'm using it as another diversifier.
02:06There is questions about debt and deficits around the world.
02:10And are bonds really, you don't get any income off gold like you do U.S. Treasuries.
02:14So very different place.
02:15But there's definitely a role for gold in portfolios.
02:19Okay.
02:19So let's talk about how investors should be positioning their portfolios amidst some of this global volatility.
02:27Should they be looking at traditional safe havens at this point?
02:31Should they be looking here in the U.S. or maybe abroad?
02:34We talk a lot about, you know, what we call the equity risk premium.
02:37And that's comparing the earnings yield on the market versus bond yields.
02:41And, you know, the 10-year bond in the U.S. yields just 4%.
02:44But on an inflation-adjusted basis, it's below 2%, like 160 to 170.
02:50Now, at 170, it'll take you almost 40 years to double your purchasing power with that kind of yield.
02:57Stocks, yes, they're more expensive than normal.
02:58But we're talking a 4% to 5% earnings yield.
03:01That's more like 14 to 15 years to double your purchasing power.
03:05So we'd say stocks are still a very good deal versus that safe haven of U.S. bonds.
03:10But there's more volatility with stocks.
03:12But I think if you're looking out over a long period, stocks are still a very good place to be.
03:16And you have a particular ETF that you actually say is geared towards turning global volatility into opportunity.
03:24It's the GeoAlpha Opportunities Fund, ticker symbol GEOA.
03:28You overweight allies and you underweight vulnerable regions.
03:33So it sounds like you have both domestic and international exposure with this ETF.
03:38But tell us about the strategy, how it works.
03:40I think geopolitical risk is very top of mind, from the tariffs that we had to the war to in Europe, in Russia, Ukraine, Asia, underlying tensions with China.
03:51So how do you think about this shifting geopolitical order?
03:55It's not just to be defensive and crouched, afraid of things.
03:59It's to go for advantageous opportunities that come from all the shift that's happening.
04:03And we think we're in a defense tech super cycle.
04:06So this is not a short-term, one-year thing.
04:08This is a, Europe is spending majorly on defense.
04:11You look at all the great innovation across time.
04:13The internet came from DARPA defense spending.
04:17Cell phones came from spending on military over time.
04:21So the huge spending we're going to have on defense in Europe, in Japan, we may have a new prime minister in Japan who's all about Japanese defense capabilities.
04:29This is going to lead to a surge in long-term innovation in technology that we think is supportive.
04:34And then you've got to find what are those opportunities.
04:36We like Europe for that.
04:38We like Japan for that.
04:40We're underweight China as a result of all the tension.
04:43And we're even underweight the U.S. in that portfolio.
04:45That's a global portfolio.
04:46And we're trying to find the best opportunities where these defense shifts are happening.
04:50So global portfolio, but still a lot of big tech exposure as well.
04:54I saw some of the biggest holdings or some of the names that we talk about all the time, some of the MAG-7, the AI names.
05:00Well, interestingly, Intel has been a top position for us.
05:03And that's been one of the things that we called before the U.S. invested in Intel and before it sort of took a big run.
05:09We do think meta is a key player in sort of all the data that they have and sort of being an AI leader.
05:15So it is, yes, it has, it's not as concentrated in the MAG-7 and not as much in the U.S., but it is trying to be a combination of this geopolitical shifts and finding where in the world you want to be there.
05:26And it sounds like you, you know, obviously you are still saying to invest here domestically, but want international exposure as well.
05:34This year, the narrative has really been around or it started the year around international outperformance.
05:39Do you expect international markets to continue their outperformance?
05:44Because the U.S. stocks have really played catch up.
05:47It's been a 15-year period.
05:49So U.S. exceptionalism has worked for the last 15 years.
05:52And it's like a 400% cumulative outperformance of the S&P 500 versus the foreign market.
05:57So you saw a little dip down in the U.S.
06:00That international, you know, they came right back.
06:02You know, the valuations, the S&P is more expensive than normal.
06:06International is much cheaper than normal.
06:08We're talking like a third of it, like a third off of the U.S. multiples.
06:13And usually it's 15 to 16% off.
06:15It's usually cheaper because they don't grow as fast.
06:17But so that's the opportunity is that it's so much cheaper than the U.S.
06:21And they have an inflection in the earnings environment because they're now doing all this new defense spending.
06:25And we think that we'll have this positive spillover to new technology that they developed.
06:29So as we head into the final stretch of the year, what's the one theme that investors can't ignore?
06:35Is it gold?
06:36Is it trade?
06:37Is it Fed cutting interest rates?
06:40What is it?
06:40Well, I think that GeoAlpha that you talked about summarizes it all.
06:43It has exposure to this global portfolio.
06:46It has the shifting geopolitical order.
06:48It has the tech and the spending.
06:51I mean, if you took one country, I think Japan has been underloved for many ways.
06:57It's really still seen no inflows this year.
07:01And so our Japan opportunities kind of idea as part of GeoAlpha is one of those countries that we also like.
07:06Yeah, I noticed Japan's second biggest country allocation in the ETF behind the United States.
07:12So as we think about the biggest opportunities heading into 2026, what would you say those would be?
07:20Well, I think it's a little bit more of the same.
07:23You know, we're going to have more volatility with this geopolitical shift.
07:26The AI narrative is continuing.
07:27That's not stopping.
07:28There's going to be a lot of spending on, it's an arms race there for tech.
07:32You know, all these LLMs and the spending on CapEx, that's not slowing down.
07:39And so it's going to have, people are looking to keep investing.
07:43And I think you've got to look for other areas beyond just that mag 7, so everybody has exposure to that.
07:47But despite the volatility that likely will ensue, you think this is a market that can continue to head higher?
07:54We do still like stocks versus bonds.
07:56I think gold finds its way to diversify the sort of purchasing power of the dollar over time and the debt and deficit issues.
08:03So that's a useful thing.
08:05But, you know, we still like stocks for the long run is our main theme.
08:08All right.
08:08Jeremy, thank you so much for sharing your insights.
08:10Thanks for having us.
08:11That's Jeremy Schwartz, Global Chief Investment Officer at WisdomTree.
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