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Nouriel Roubini, aka Dr Doom, has been dishing up his downbeat takes on the global economy and markets for decades.
Now investors will finally get the chance to see how his gloomy insights translate into financial returns as Roubini, who earned his Dr Doom moniker for foreseeing the 2008 global financial crisis, turns to managing money for the first time at the age of 66.
Barring any late regulatory hitches, the Atlas America exchange traded fund will list in the US in the autumn with Roubini, chief economist and co-founder of US-based Atlas Capital Team, one of three named portfolio managers.
“I have been advising asset managers through my economic consultancies for decades now,” Roubini told the Financial Times.
“After I published Megathreats two years ago I realised that there is a variety of risks that are emerging that are new and different and that we need to be concerned about,” he said of the rationale for the fund.
In typical Roubini fashion, these risks are almost too numerous to list. Suffice it to say that they include, but are not limited to, higher inflation, the debasement of the dollar, global dedollarisation, food and resource scarcity, climate change, pandemics, political polarisation, hot wars, cold wars, cyber attacks and AI-driven manipulation.
This mindset has led Roubini to question the traditional investment approach of the 60/40 equity/bond portfolio.
“If you assume bond and equity prices are negatively correlated, it works, as long as inflation is low and stable and there are no other tail risks,” Roubini said.
“But in 2022 the S&P was down 15 per cent and 10-year Treasuries were down 20 per cent. Traditional defensive assets were not defensive at all,” he said.
Atlas Capital’s solution is to build a portfolio consisting of short-term Treasuries (up to two years), which are less exposed to rising inflation, alongside “an optimised basket of low or negatively correlated assets” such as gold, “climate-resilient” real estate investment trusts (Reits), Treasury inflation-protected securities and agricultural commodities — deemed as strategically important “when food supply is threatened by climate and geopolitical conflict”.
Roubini argued that the ETF was not a hedge product, with backtesting showing the strategy “does well in good times”, as well as bad.
The filing document refers to “moderate” returns, which Roubini expounds as “far better than fixed income returns” with “far less volatility” than equities, without losing money during black swan events.
Roubini and his colleagues are not content to push this as merely an investment vehicle, however. They also see it as a public policy initiative, akin to the Marshall Plan, designed to “enhance American economic stability and ensure future prosperity”.
“We want to invest in rebuilding US infrastructure. We want to ensure food security, reshore production of green metals and rare earths,” Roubini said.
This theme of rebuilding is pertinent to the fund’s proposed Reit portfolio. Roubini’s view is that climate change will make places such as coastal Florida and Texas near uninhabitable, particularly as insurance companies withdraw cover and the federal government will no longer be able to afford to step into the void.
“We believe there will be mass migration in North America and that mass migration will have a significant impact on property prices”.
Roubini said the movement of “a few hundred thousand people” from the likes of New York and San Francisco to Austin and Miami during Covid led to “swings of 15-20 per cent” in property prices.
However, “in an extreme climate change scenario up to a third of the North American population will need to move. Literally millions of people every year,” he argued, adding that millions of people are going to be stranded in places that are too wet, too hot or too exposed to hurricanes and forest fires.
Atlas Capital’s answer to this is to use machine learning to analyse every Reit using a hyper localised ZIP level data set and give it a score based on climate risk.
This, Roubini hopes, will help provide funding for a wave of property and infrastructure development in areas least exposed to climate change.
If you are wondering why Roubini is focusing on the US when he foresees such trouble ahead, the answer is simple — he believes things will be far worse everywhere else.
“There will be lots of turmoil in the world in the next few decades,” he said. “We are much safer than Europe and Asia. We have thousands of miles of oceans separating us from potential enemies and are self-sufficient in food and resources.”
The Gulf may get a look in, though.
Reza Bundy, chief executive of Atlas, said it was in discussion with several Gulf sovereign wealth funds about investing in the ETF, and there was the possibility of it being cross-listed in the Gulf and investing in the region’s government bonds and Reits.
Bundy added that Atlas was also in discussions about tokenising the fund — with transactions recorded on a blockchain — to allow non-US investors, particularly those in the “global south” to invest. Roubini was hopeful this could allow shares in the ETF to be used as a means of payment.
“This is bigger than an ETF. It’s bigger than a digital currency. It’s something that governments cannot do,” he added.
Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, welcomed the launch, arguing there has been an “oversupply of speculative ETFs”, whereas the more defensive part of the market has been “underserved”.
“Many investors in the US find it easier to look up than down. Many long-term investors could benefit from adding something that looks like this to their portfolio,” Lamont said.
However, he added that “it’s worth remembering [Roubini] has been a permabear during one of the biggest equity booms in history. He’s not an oracle.”
The fund will have an annual fee of 75 basis points. Assuming regulatory approval, it will list via the Goldman Sachs ETF Accelerator.