‘Out of favor’ assets offer opportunity to make big money, says billionaire investor Howard Marks

SINGAPORE — Investments that have been “out of favor” could offer big returns that are becoming increasingly difficult to find in today’s low interest rate environment, according to Howard Marks, a widely followed billionaire investor.

“It’s not easy to find opportunities today,” Marks, co-founder and co-chairman of Oaktree Capital Management, told CNBC’s “Street Signs Asia” on Wednesday.

With yields on U.S. Treasurys close to zero, other asset classes look “very attractive” in comparison — but returns may still be lackluster, he said.

“You get to a point where everything is selling at a fair price relative to the very low interest rate but still at very low prospects of returns. And I think that’s where we are,” he said. “So where are the opportunities today? The opportunities are in the things that are out of favor.”

Those “out of favor” assets include retail and office real estate, as well as stocks in the entertainment and hospitality sectors, said Marks.

“I think we’ve developed a real dichotomy between the things that are obviously successful but expensive, and the things that look low-priced but are challenged in terms of business. And big money will be made by buying the latter which works in my opinion,” he added.

He noted that until the recent sell-off in U.S. markets, the tech sector was favored by investors as companies saw improved business during the Covid-19 pandemic.

While some of the tech stocks now look expensive, Marks said they could “still make people a lot of money” in the long run. The key is to identify which companies would be successful over the longer term to validate investors’ expectations of them, he added.

On the latest sell-off in U.S. markets led by tech stocks, Marks said many investors are focused on short-term fluctuations that may not mean much.

He pointed out that even though market fluctuations have been “unusually strong” this year, the recent move downward in stock prices comes after a roughly 60% climb since the trough in March.

“Remember that the market went up roughly 60% from the low of March 23 to the other day, and now it’s given back 6% so it’s still way off from the bottom, it’s still in the vicinity of what was an all-time high set in February,” he said.

“Maybe things went too well and a few people decided that stocks should be a little lower so they sold them off especially in tech,” he added.

So, it’s important that investors recognize markets can’t tell them what lies ahead, said Marks.

“Markets seem to be getting more volatile … everybody gets a hair trigger and is looking at the short-term performance as if that means anything,” he said. “What really means something is whether you hold stocks for the long run and whether you hold good ones.”