Legendary investor Howard Marks warns against chasing the vaccine rally as opportunities to buy distressed assets are drying up
- Howard Marks warned against chasing the market's vaccine rally as he sees fewer opportunities to buy distressed assets.
- "The main way to achieve high returns in a low-return world is through taking increased risk. And I don't think this is the climate to take more risk," the billionaire investor told Bloomberg on Tuesday.
- The amount of distressed debt in the US, which hit $1 trillion during the height of COVID-19, has fallen back to about $236 billion this month, which means there are fewer buying opportunities for asset managers like Oaktree that handle debt securities.
- "We have to make good investments when they present themselves, but maintain our discipline and not chase things," he said.
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Veteran investor Howard Marks, one of the biggest investors in distressed assets, is back to favoring caution when it comes to taking on extra risk right now.
"When the level of optimism is high, there is usually more room for disappointment," Marks, the co-founder of Oaktree Capital Group told Bloomberg in a telephone interview on Tuesday. "The main way to achieve high returns in a low-return world is through taking increased risk. And I don't think this is the climate to take more risk."
Back in April, he noted that returns on bonds had rotated "from paltry to attractive" and said even the most cautionary buyers should pile on offensive strategies to capture value while it lasts.
In his memo, he warned investors that waiting for absolute lows before buying further would be "irrational" since a bottom can only be recognized in retrospect.
He still projects the same kind of thinking about predicting prices. "Trying to predict market sentiment gets you into trouble," he told Bloomberg. But he is concerned about buying at current prices.
"Maybe we're in the area of a top," he said. "The rebound has been substantial."
November has brought with it a string of good news for stock bulls as the US election outcome has become clear, Pfizer and BioNTech displayed good progress on their coronavirus vaccine, and so did Moderna.
US Treasury yields and spreads remain low, and "the pressure to buy is strong," Marks said in the interview.
The amount of distressed debt in the US, which hit $1 trillion during the peak of the coronavirus crisis in the spring, has fallen back to pre-pandemic levels, or about $236 billion, which means there are fewer buying opportunities for asset managers like Oaktree that handle debt securities, Bloomberg said.
"Opportunities are moderate," Marks said. "We have to make good investments when they present themselves, but maintain our discipline and not chase things." He thinks sectors such as hospitality, travel, and retail are still favorable targets, and their problems may be overrated.
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