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Howard Marks: Reassess your bond and equity weighting

Howard Marks, Oaktree Capital Management Co-Chairman, recently attended the HKMA Global Financial Leaders’ Investment Summit, where he discussed the balance between investing in credit and equities with Bloomberg’s David Ingles.

For an individual investor, this means investing in government, mortgage and corporate bonds on the one hand and listed companies on the other. In this split, Marks today sees completely different opportunities to get a return on par with the equity market, i.e. 8-10% per year. Even with a large allocation towards bonds:

 

Right now, it looks like you can get equity type returns from credit. A little below ten for what we call liquid credit, stuff that’s tradable every day, and well above ten perhaps for private credit, which is not tradable. […]

So the question is, how do you and your organization feel about that trade off? If I say to you I think I can get you 9 to 10% through a balanced portfolio of credit, over the long term quite dependably. If you say that’s great, I love that, maybe you do 75% of your portfolio.

If you say I want to still make sure that I have exposure to the upside of equities, then you say maybe 50 or 40.

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