Howard Marks’ Investing Strategy In The Current Risk Environment

Howard Marks, the chairman of the investment firm Oaktree Capital Management, says that “the most attractive assets classes now are the ones that the retail investor really doesn’t have access to”, in an exclusive interview with CCTV News. He suggests that the so-called private strategies are cheaper and more attractive than public strategies, which “have been driven up in price”. To be more detailed, Howard Marks pinpoints that real estate, infrastructure, and control investing “are more attractive than public stocks and bonds“. However, a typical investor does not have the expertise of the chairman of the world’s biggest distressed-debt investor, which makes it close to impossible to exploit the existing opportunities in the aforementioned asset classes.

Oaktree Capital Management is a global alternative investment management firm that primarily focuses on credit strategies. The investment firm was established back in 1995 by a group of individuals, including Howard Marks, who had previously been investing in high yield bonds, convertible securities, distressed debt, real estate, and control investments. As stated by the firm’s latest 13F filing with the SEC, Oaktree Capital oversees a public equity portfolio with a market value of $8.63 billion as of June 30. We will discuss the firm’s top holdings later on in this article.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated ten percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 60 percentage points (118% return vs. the S&P 500’s 57.6% gain) over the last 36 months (see the details here).

Howard Marks, who is also widely-known for his investor memos, also asserted that most asset classes are now more attractive as the recent volatility has reduced their prices. Unlike most people who become more interested in specific asset classes or securities in particular when prices go up, Oaktree’s chairman implies that his investment firm may become more interested in the recently-hit public asset classes. Furthermore, Marks does not consider himself a Fed-watcher, claiming that “the important thing is that interest rates will rise”, whereas the timing of a potential rate hike is completely irrelevant.