Yusko: Japan Surges As India Stalls; Don’t Fear Russian Fund RSX

June 09, 2015

Mark Yusko is the CEO and CIO of Morgan Creek Capital Management LLC, which is the subadvisor for the AdvisorShares Morgan Creek Global Tactical ETF (GTAA | 43). From 1998 to 2004, he led the endowment office at the University of North Carolina at Chapel Hill. He is speaking next week at ETF.com's Global Macro Conference in New York, taking place on Wednesday, June 17.

ETF.com: I recall you asking folks in attendance at Inside ETFs in January how many had exposure to India and Japan. Few, if any, raised their hands.
Mark Yusko: Very few.

ETF.com: Do you still feel those two markets will outperform the U.S., or has your outlook changed?
Yusko: There have been some changes. It's nice that we actually have the baseline from January to talk about. We're probably more excited about Japan now than we were then. The Bank of Japan has done just about everything right in terms of achieving [some key] points: weakening the currency, improving GDP growth, and getting back some inflation, and then trying to strip away some of the regulatory hurdles that will encourage innovation and growth.

They have done a fantastic job. You're seeing record profits from Japanese companies. The yen has steadily marched downward, hovering around 124, 125 now. So, they're hitting on all cylinders. And the Japanese market is up, in yen, about 22 percent this year. That's a fantastic return relative to the 2 or 3 percent in the U.S.

And what is interesting is, even in dollars terms, that market is still up about 16 percent, and most of that gap has really only been in the last couple weeks where the yen has started to weaken again. We still believe that, to invest in Japan, you want to be hedged back to yen, but there hasn't been as much of a penalty this year if you bought the unhedged iShares MSCI Japan (EWJ | B-99) versus the WisdomTree Japan Hedged Equity (DXJ | B-68). Up until three weeks ago, they were almost identical.

ETF.com: In India, though, we're not seeing that kind of currency debasement by the central bank there.
Yusko: Leading up to the 2014 election, we liked India a lot. The January-through-May period was fantastic. We bought the WisdomTree India Earnings (EPI | C-82) and the iShares MSCI India (INDA | C-96), and life was good. And then post-election everybody went, "OK, where is all the change?" Give the guy five minutes to be in office! But you basically have had a lot of volatility since then. This year India is roughly flat. That's pretty disappointing.

Now, that's the short term. Long term, we are wildly optimistic and bullish about India. We think "Modinomics" works. We think that the demographics are fantastic in terms of the working-age population growth. We think that they're starting from a low base and that it's the China story writ large over the next decade.

Over the past few months, people decided they're disappointed with the pace of reforms; that the corruption is much deeper than they thought; and that growth isn't going to happen overnight. We have cut our exposure a little bit to India. We haven't gone to zero, but we have cut it back a little bit and we're going to nibble on the margin. We're telling people now to focus on the India ETFs that have a little bit of an overweight to financials and are more cyclical, because we think there is a great story here; it's just going to take a little bit longer.

 

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