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Howard Marks says ETFs can't go on forever

By Mar 15, 2021 (Gmt+09:00)

Oaktree Capital Management co-founder and co-chairman Howard Marks
Oaktree Capital Management co-founder and co-chairman Howard Marks
Retail investors have been leaning toward passive investment vehicles like equity-traded funds (ETFs), which should eventually push high-valued stocks such as technology giants to overvaluation levels that cannot be sustained, said Oaktree Capital Management’s co-founder and co-chairman Howard Marks.

The chairman said the biggest ETFs automatically put the biggest technology stocks such as Apple, Amazon, and Microsoft in their portfolios, backed by increased capital inflows, without making an active selection. He advised individual investors to invest through actively managed mutual funds with a long track record.

"Certainly the trend toward passive investing, like through ETFs, has been very strong ... If the ETFs are receiving a disproportionate amount of the cash flow into the market, then the stocks that they feature will do better than the market as long as it continues," he told The Korea Economic Daily in a recent video interview.

"They’ve outperformed because they got more demand. But I believe it can’t go on forever. Nobody is studying the companies, and nobody is saying 'this one is overpriced, this one is underpriced,' they just buy what’s on the list," Marks said in reference to ETFs. "So I think you have to be in actively managed mutual funds."

Stock prices have recovered substantially, running far ahead of the economy, which is just at the very beginning of recovery. But that would not mean stock markets are in a period of risk, he said.

"Now, stock market prices look very full, but we have a big economic recovery ahead of us ... I don’t necessarily think it’s at a risky stage."

He advised value investors to be open-minded to high-growth technology stocks and to "think bigger," and not be held back by numbers such as P/E ratios.

"Now, value investing over the years has kind of been standardized to mean investing in things where there is limited uncertainty, high predictability -- that means the future is easy to foresee, and low valuations," he said. 

"The principle is that even the value investors should be open to companies that are fast growing and have a future, and are high priced based on the numbers -- high P/Es." 

He recommended tech-focused mutual funds, which outperformed markets when technology stocks were out of favor, but to avoid so-called "style drift" managers who change their style over time.


Regarding Tesla Inc., the P/E ratio of which has exceeded 1,000, Marks likened unprofessional investors' bet on or against the US electric vehicle maker to gambling, saying: "Tesla is a great example of a company where nobody knows anything about the future."

But he changed his stance on bitcoin, which he had once dismissed, reflecting the growing demand for cryptocurrencies. 

"When it first became well known, which was 2017 I believe, I was very dismissive of it because it doesn’t have intrinsic value," he said,

"But there are a lot of things that people want and value highly which have no intrinsic value. The supply is fixed by the software ... so it can’t expand much, unlike the dollar which can be printed in infinite amounts. And the demand is growing because more people are interested in it."

For retail investors interested in alternative assets, the chairman recommends stocks of alternative asset managers such as KKR & Co., Apollo, Ares Management, and The Blackstone Group.

If they want to invest through Oaktree, they can just buy the stock of Brookfield, which acquired Oaktree in 2019.

Oaktree Capital is one of the largest distressed debt investors in the world and manages $148 billion in assets as of the end of 2020. 

Write to Chang Jae Yoo at

Yeonhee Kim edited this article.

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