ETF Spotlight: The geopolitics play

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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,

00:50is the debasement trade on what 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,

01:13you know, all these leveraged trades on,

01:15and there's a huge crash down in crypto.

01:17So, like, 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.

01:57I 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.

02:07There 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. Treasury.

02:14So, very different place.

02:15But there's definitely a role for gold in portfolios.

02:19Okay, so let's talk about how investors should be positioning their portfolios

02:23amidst 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

02:55with that kind of yield.

02:57Stocks, yes, they're more expensive than normal.

02:59But we're talking a 4% to 5% earnings yield.

03:01That's more like 14 to 15 years to double your purchasing power.

03:04So 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

03:23into 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

03:44to in Europe, in Russia, Ukraine, you have Asia, underlying tensions with China.

03:51So how do you think about this shifting geopolitical order?

03:55Where it'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.

04:20So the huge spending we're going to have on defense in Europe, in Japan, we may have a

04:25new prime minister in Japan who's all about Japanese defense capabilities.

04:29This is going to lead to a surge in long-term innovation and technology that we think is

04:34supportive.

04:34And then you've got to find, what are those opportunities?

04:37We 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.

04:58Some of the Mag7, the AI names.

05:01Well, 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

05:07before 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

05:14an AI leader.

05:15So it is, yes, it has, it's not as concentrated in the Mag7 and not as much in the U.S., but

05:20it is trying to be a combination of this geopolitical shifts and finding where in the world you

05:25want to be there.

05:26And it sounds like you, you know, obviously you are still saying to invest here domestically,

05:31but want international exposure as well.

05:34This year, the narrative has really been around, or it started the year around international

05:38outperformance.

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, that 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

06:24new defense spending.

06:25And we think that will have this positive spillover to new technology that they developed.

06:28So as we head into the final stretch of the year, what's the one theme that investors

06:34can'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.

06:44It 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.

06:56It's really still seeing no inflows this year.

07:01And so our Japan opportunities kind of idea as part of GeoAlpha is one of those countries

07:05that we also like.

07:06Yeah, I noticed Japan's second biggest country allocation in the ETF behind the United States.

07:13So as we think about the biggest opportunities heading into 2026, what would you say those

07:19would 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.

07:33You 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 7s.

07:46Everybody has exposure to that.

07:47But despite the volatility that likely will ensue, you think this is a market that can

07:52continue to head higher?

07:54We do still like stocks versus bonds.

07:56I think gold finds its way to diversify this sort of purchasing power of the dollar over

08:01time 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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