Caroline Woods:
Joining me now, Jeremy Schwartz, global chief investment officer at WisdomTree. Jeremy, thanks so much for joining me at the desk.
Jeremy Schwartz:
It’s a pleasure to be here. Thanks for having me.
Caroline Woods:
So, Jeremy, we’re talking about turning global volatility into opportunity. I want to talk about some of the things causing that volatility, namely geopolitics and trade and of course, interest rate policy. But before we get to that, I want to ask you about gold because gold continues its run higher, continually hitting record highs, trading above $2150 an ounce right now. Some might look at it as a hedge against volatility, as a means of diversification, a safe haven. How much of it is that, and how much of it is geopolitics driving this run higher? And are we nearing the top? You’ve got a name for the trade at the moment called the debasement trade — it’s going around the desks this week as people talk about: is the debasement trade on? What is really driving this gold price higher?
Jeremy Schwartz:
You know, gold has had a very unique role. It’s been one of the monetary assets used for thousands and thousands of years. People look at it as a store of value. Now you have crypto as Bitcoin — the new digital gold and a hedge. And we talk about — if you look at just the last week and the sort of sell-off in crypto over the weekend — you had all these leveraged trades on, and there’s a huge crash down in crypto. So like, was it a safe haven hedge the way people are thinking about that? It’s hard to argue that case. But gold has a different role as a ballast in some of this long-term purchasing power protection. I’ve done research with Professor Jeremy Siegel at Wharton. He has 200 years of data, and gold kept up with inflation over 200 years — basically providing protection from inflation. Over different periods, it has better returns. But I think it is a useful hedge asset from that purchasing power perspective.
Caroline Woods:
Do you think it can continue its run higher, though? Because we have seen such impressive gains — at the same time that the market has been gaining as well. This year has been very hot. The last few years, it’s been hot.
Jeremy Schwartz:
I do think it has a role. You’re finding central banks saying, “You know, maybe I don’t want to have all my money in dollars. Maybe I’m using it as another diversifier.” There are questions about debt and deficits around the world. And bonds — really, you don’t get any income off gold like you do U.S. Treasuries, so very different place. But there’s definitely a role for gold in portfolios.
Caroline Woods:
OK, so let’s talk about how investors should be positioning their portfolios amidst some of this global volatility. Should they be looking at traditional safe havens at this point? Should they be looking here in the U.S. or maybe abroad?
Jeremy Schwartz:
We talk a lot about what we call the equity risk premium. And that’s comparing the earnings yield on the market versus bond yields. And the 10-year bond in the U.S. yields just 4%, but on an inflation-adjusted basis, it’s below 2% — like 1.60% to 1.70%. Now at 1.70%, it’ll take you almost 40 years to double your purchasing power with that kind of yield. Stocks — yes, they’re more expensive than normal. But we’re talking a 4% to 5% earnings yield. That’s more like 14 to 15 years to double your purchasing power.
So we’d say stocks are still a very good deal versus that safe haven of U.S. bonds. There’s more volatility with stocks, but I think if you’re looking out over long periods, stocks are still a very good place to be.
Caroline Woods:
And you have a particular ETF that you actually say is geared towards turning global volatility into opportunity. It’s the Alpha Opportunities Fund, ticker symbol GEOA.
You overweight allies and you underweight vulnerable regions. So it sounds like you have both domestic and international exposure with this ETF. But tell us about the strategy — how it works.
Jeremy Schwartz:
I think geopolitical risk is very top of mind — from the tariffs that we had to the war in Europe and Russia-Ukraine, you have Asia, underlying tensions with China. So how do you think about this shifting geopolitical order? It’s not just to be defensive and crouched, afraid of things — it’s to go for advantageous opportunities that come from all this shift that’s happening. And we think we’re in a defense tech supercycle. So this is not a short-term, one-year thing. This is — Europe is spending majorly on defense. You look at all the great innovation across time — the internet came from DARPA, defense spending. Cell phones came from military spending over time. So the huge spending we’re going to have on defense — in Europe, in Japan — we may have a new prime minister in Japan who’s all about Japanese defense capabilities. This is going to lead to a surge in long-term innovation in technology that we think is supportive. And then you’ve got to find — what are those opportunities? We like Europe for that. We like Japan for that. We’re underweight China as a result of all the tension. And we’re even underweight the U.S. in that portfolio. That’s a global portfolio, and we’re trying to find the best opportunities where these defense shifts are happening.
Caroline Woods:
So global portfolio, but still a lot of big tech exposure as well. I saw some of the biggest holdings are some of the names that we talk about all the time — some of the Magnificent Seven, the AI names.
Jeremy Schwartz:
Well, interestingly, Intel has been a top position for us. And that’s been one of the things that we called before the U.S. invested in Intel and before it sort of took a big run.
We do think Meta is a key player in all the data that they have and sort of being an AI leader. So, yes, it’s not as concentrated in the Mag 7 and not as much in the U.S., but it is trying to be a combination of these geopolitical shifts and finding where in the world you want to be.
Caroline Woods:
And it sounds like, you know, obviously you are still saying to invest here domestically but want international exposure as well. This year, the narrative has really been around — or it started the year around — international outperformance. Do you expect international markets to continue their outperformance? Because U.S. stocks have really played catch-up.
Jeremy Schwartz:
It’s been a 15-year period. So U.S. exceptionalism has worked for the last 15 years. And it’s like a 400% cumulative outperformance of the S&P 500 versus the foreign market.
So you saw a little dip down in the U.S., and then international — you know, they came right back. The valuations — the S&P is more expensive than normal. International is much cheaper than normal. We’re talking like a third off of U.S. multiples. And usually it’s 15% to 16% off. It’s usually cheaper because they don’t grow as fast. But so that’s the opportunity — that it’s so much cheaper than the U.S. And they have an inflection in the earnings environment because they’re now doing all this new defense spending.
And we think that will have this positive spillover to new technologies that they develop.
Caroline Woods:
So as we head into the final stretch of the year, what’s the one theme that investors can’t ignore? Is it gold? Is it trade? Is it the Fed cutting interest rates? What is it?
Jeremy Schwartz:
Well, I think that Alpha that you talked about summarizes it all. It has exposure to this global portfolio. It has the shifting geopolitical order. It has the tech and the spending.
I mean, if you took one country — I think Japan has been underloved for many years. It’s really still seen no inflows this year. And so our Japan opportunities kind of idea as part of Alpha is one of those countries that we also like.
Caroline Woods:
Yeah, I noticed Japan’s the second biggest country allocation in the ETF behind the United States. So as we think about the biggest opportunities heading into 2026, what would you say those would be?
Jeremy Schwartz:
Well, I think it’s a little bit more of the same. You know, we’re going to have more volatility with this geopolitical shift. The AI narrative is continuing — that’s not stopping. There’s a lot of spending on it. It’s an arms race there for tech. You know, they need all these LLMs. And the spending on CapEx with that — it’s not slowing down. And so people are looking to keep investing. And I think you’ve got to look for other areas beyond just that Mag 7. Everybody has exposure to that.
Caroline Woods:
But despite the volatility that likely will ensue, you think this is a market that can continue to head higher?
Jeremy Schwartz:
We do still like stocks versus bonds. I think gold finds its way to diversify the sort of purchasing power of the dollar over time and the debt and deficit issues, so that’s a useful thing. But you know, we still like stocks for the long run as our main theme.
Caroline Woods:
All right, Jeremy, thank you so much for sharing your insights.
Jeremy Schwartz:
Thanks for having us.
Caroline Woods:
That’s Jeremy Schwartz, global chief investment officer at WisdomTree.
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