Oaktree Capital founder Howard Marks has a simple message for investors worried about America’s worsening fiscal picture: selling U.S. stocks won’t solve the problem.
In his latest memo, the billionaire argues that the underlying issue isn’t necessarily the health of U.S. companies or the stock market, but U.S. fiscal management and the dollar’s potential loss of purchasing power. Moving from equities into cash, money-market funds or bonds would still leave investors exposed if those assets remain denominated in dollars.
That distinction creates an interesting portfolio question for ETF investors: If the concern is the dollar rather than U.S. corporate earnings, what can investors hold alongside U.S. stocks to diversify that risk?
Marks points to assets denominated in other currencies and non-financial assets such as gold and real estate. But he also acknowledges that these alternatives come with their own risks.
Gold: The Most Obvious ETF Expression of Marks’ Argument
SPDR Gold Shares (NYSE:GLD) and iShares Gold Trust (NYSE:IAU) provide exposure to physical gold rather than another dollar-denominated financial asset. GLD tracks the price of gold bullion, less expenses, while IAU seeks to reflect the price of gold bullion.
But gold is hardly a one-way trade.
The metal has recently been pressured by expectations for higher-for-longer interest rates and a stronger dollar. Reuters reported on Tuesday that spot gold was down 0.3% at $4,332.34 an ounce, while gold has fallen more than 22% from its January peak of $5,594.82.
That makes gold particularly relevant to Marks’ broader point: there may be no perfect hedge for fiscal deterioration.
International ETFs Could Diversify the Dollar Exposure
Vanguard Total International Stock ETF (NASDAQ:VXUS) tracks the FTSE Global All Cap ex US Index and provides exposure across developed and emerging markets outside the U.S., all at an expense ratio of 0.05%.
This also fits into a broader market trend.
Earlier this year, J.P. Morgan Asset Management argued that a weaker dollar can support international equities and said a weak-dollar theme can be expressed through international equities, emerging-market debt, gold and currency exposure.
For investors concerned specifically about U.S. fiscal risk, the attraction is straightforward: VXUS gives them exposure to companies whose revenues, assets and currencies are not concentrated in the United States.
Real Estate Is Another Asset Marks Puts on the Table
Real estate could potentially provide diversification from dollar-related risks.
For ETF investors, Vanguard Real Estate ETF (NYSE:VNQ) offers exposure to publicly traded U.S. REITs and other real-estate-related investments.
Investors looking to take the idea a step further could look at Vanguard Global ex-U.S. Real Estate ETF (NASDAQ:VNQI), which tracks international real estate stocks outside the U.S.
However, REITs remain equities and can be sensitive to interest rates, financing costs and economic growth. They therefore shouldn’t be treated as a direct substitute for gold or foreign-currency exposure.
The Bigger ETF Takeaway
Marks’ argument isn’t really a call to rotate from stocks into one particular "safe-haven" ETF. It is about diversifying the source of risk.
An investor holding only U.S. equities, U.S. bonds, and dollar cash could remain heavily exposed to the same currency and fiscal risks Marks is discussing. Adding international equities, gold or real estate introduces different drivers of returns.
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