Faber: Know What The ETF Represents

November 11, 2014

Thailand-based investment adviser and broker-dealer, Marc Faber, is famed for his bearish views. His role as editor and publisher of the Gloom Boom & Doom Report Newsletter has earned him the moniker Dr Doom. He is also director of investment adviser and fund manager, Marc Faber Ltd.

Recent interviews with CNBC have seen him predicting a ‘correction’ in equity markets. Author of Tomorrow’s Gold, and a specialist on investment in developments, especially in Asia, Faber will be speaking at ETF.com's virtual conference on Tuesday 2nd December.

ETF.com’s European Editor, Rebecca Hampson, speaks to Faber on what his macro views are now and how investors can use ETFs in the best way.

ETF.com: Is Europe priced correctly and are there investment opportunities?

Marc Faber: We have massive intervention at the moment as central banks manipulate interest rates, essentially delivering them to artificially low levels. It means there is a mispricing in asset prices across the board.

If I look at global markets, the most expensive is the U.S. and the less expensive - and with probably higher returns - is Europe and then the cheapest are emerging markets. These will probably offer the highest returns over the next 10 years, but investors will have to live with some volatility.

ETF.com: What is going to be the upshot of when rates change?

Faber: Well, who knows.

Nobody knows when rates will go up. Many fund managers have been looking at Japanese government bonds for the last 10 years and they have lost a lot of money because the Bank of Japan is basically buying all the bond issues that the treasury is issuing. It means you end up with artificial interest rates and this is likely to be the case in Europe where the European Central Bank will also buy all kinds of papers, although they will buy it at a very high price.

ETF.com: Should investors hedge themselves against rising rates now?

Faber: I am not sure that rates will go up in the immediate future. I think they could stay low for an extended period of time, maybe one or two years.

In particular, we see this in the U.S. If the dollar continues to strengthen then I would imagine that treasury notes that are currently yielding over 2-3 percent could decline below 2 percent.  So it isn’t a case of saying rates have to go up, because yes, eventually they will be higher, but it could be 2-3 years from now. So, if someone wants to hedge against rising rates then the best way to do this is to own equities, because if rates start to rise, there could be a flow of money out of bonds into equities, which has to some extent already occurred, but could accelerate.

ETF.com: Investors are still on the search for high yield – does ‘high yield’ still exist?

Faber: Yes. I am an example. I invest mostly in relatively high dividend paying stocks in Singapore, Hong Kong and Thailand and I can get yields on these of around 5-7 percent. So, while I don’t always feel 100 percent comfortable with some of the risks, I feel reasonably comfortable with these investments.

ETF.com: What about for retail advisers?

Faber: People that don’t know enough about what they are investing in shouldn’t be investing in it.

ETF.com: Where do they [retail investors] start looking for yield?

Faber: The information they need is available on lots of websites. But in general for retail clients who don’t have a huge amount of money, I would advise – as I advise for large institutions – to have diversification.

Some money should be in stocks, some should be in gold and some should be in real estate, some on cash and bonds.

And for smaller investors the most attractive avenue is to invest in these assets through ETFs.

 

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