“Dr Doom” calls for ETF launch based on his bleak outlook

Nouriel Roubini, aka Dr. Doom, has been voicing his unfavorable views on the global economy and markets for decades.

Now investors will finally get the chance to see how his dark insights translate into financial returns as Roubini, who earned the nickname Dr Doom for predicting the 2008 global financial crisis, moves into money management for the first time at age 66 years.

Barring any late regulatory issues, the Atlas America exchange-traded fund will list in the US in the fall with Roubini, chief economist and co-founder of the US-based Atlas Capital Team, one of three named portfolio managers.

“I have been advising asset managers through my economic consultancies for decades,” Roubini told the Financial Times.

“After I published Megathreats two years ago, I realized that there are a variety of emerging risks that are new and different that we need to worry about,” he said of the fund’s rationale.

In typical Roubini fashion, these risks are almost too numerous to list. Suffice it to say that these include, but are not limited to, higher inflation, dollar degradation, global de-dollarization, food and resource scarcity, climate change, pandemics, political polarization, hot wars, cold wars, cyber attacks and AI-manipulation driven.

This mindset led Roubini to question the traditional 60/40 stock/bond portfolio investment approach.

“If you assume that bond and stock 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 is down 15% and the 10-year Treasury is down 20%. Traditional defensive assets were not defensive at all,” he said.

Atlas Capital’s solution is to build a portfolio of short-term Treasuries (up to two years), which are less exposed to rising inflation, alongside “an optimized basket of low or negatively correlated assets” such as gold, “resistant to climate” real estate investment trusts (Reits), inflation-protected Treasuries and agricultural commodities – seen as strategically important “when food supplies are threatened by climate and geopolitical conflict”.

Roubini argued that the ETF was not a hedging product, with backtesting showing the strategy “does well in good times” as well as bad.

We believe that there will be a mass migration to North America and that the mass migration will have a significant impact on property prices

The filing refers to “moderate” returns, which Roubini touts as “much better than fixed income returns,” with “much less volatility” than stocks, without losing money during black swan events.

However, Roubini and his colleagues are not content to promote this as just an investment vehicle. They also see it as a Marshall Plan-like public policy initiative designed to “enhance American economic stability and ensure future prosperity.”

“We want to invest in rebuilding American infrastructure. We want to ensure food security, restore the production of green metals and rare earths,” said Roubini.

This theme of reconstruction is relevant to the fund’s proposed Reit portfolio. Roubini’s view is that climate change will make places like coastal Florida and Texas nearly uninhabitable, especially as insurance companies withdraw coverage and the federal government can no longer afford to step into the void.

“We believe there will be mass migration to North America and that mass migration will have a significant impact on property prices.”

Roubini said the movement of “several hundred thousand people” from New York and San Francisco to Austin and Miami during Covid has led to “15-20% drops” in property prices.

However, “under an extreme climate change scenario, up to a third of North America’s population will have to move. Literally millions of people every year,” he argued, adding that millions will be stuck in places that are too wet, too hot or too exposed to hurricanes and wildfires.

Atlas Capital’s answer to this is to use machine learning to analyze each Reit using a hyperlocalized ZIP-level data set and assign 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’re wondering why Roubini focuses on the US when he predicts such problems in the future, the answer is simple – he thinks things will be much worse everywhere.

“There’s going to be a lot of turmoil in the world over the next few decades,” he said. “We are much safer than Europe and Asia. We have thousands of miles of ocean separating us from potential enemies, and we are self-sufficient in food and resources.”

Golf can take a look, though.

Reza Bundy, chief executive of Atlas, said it is in discussion with several Gulf sovereign wealth funds about investing in the ETF and there is a possibility that it could be cross-listed in the Gulf and invest in government bonds and Reits from the region.

Bundy added that Atlas was also in discussions about tokenizing the fund — with transactions recorded on a blockchain — to allow non-US investors, particularly those from the “global south,” to invest. Roubini hoped that this could allow ETF shares to be used as a means of payment.

“This is bigger than an ETF. It is bigger than a digital currency. This is something governments cannot do,” he added.

Kenneth Lamont, senior fund analyst for passive strategies at Morningstar, welcomed the launch, arguing that there was an “oversupply of speculative ETFs” while the more defensive side of the market was “underserved”.

“Many US investors 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) was a fixture during one of the biggest stock booms in history. He is not an oracle.”

The fund will have an annual fee of 75 basis points. Subject to regulatory approval, it will list through the Goldman Sachs ETF Accelerator.