ETF Manager Renounces Emerging Markets to Pile Into Gold

What do you do when you’re sure global stocks are running out of gas, rising rates are about to pummel bonds and your models show the only emerging market worth a bet is India? You buy gold, of course.

Fritz Folts did just that earlier this year after slashing his holdings of exchange-traded funds backed by stocks and cutting to zero his exposure to broad emerging-market ETFs, focusing instead on the U.S. and Japan. He says the positive growth momentum and favorable investor psychology that drove equities in 2017 diminished this year, and markets aren’t paying enough heed to the next round of U.S. Federal Reserve hikes.

“2017 has left the building,” said Folts, 60, who oversees $800 million as chief investment strategist and managing partner at 3EDGE Asset Management LP in Boston. The Total Return Strategy portfolio posted an average annual return of 9.03 percent since January 2016, when the firm began with $100 million of assets under management.

Folts, a three-decade industry veteran, said in a phone interview last week that gold is the best place to absorb external shocks amid increased volatility stemming from global trade tension and he has invested in the commodity through various ETFs. The precious metal rose more than 1 percent during the past month as trade-war bombast spurred a rout in global stocks.

He has a minimal exposure to fixed income, mostly U.S. Treasuries and ultra-short ETFs with duration under a year. He’s been bearish on debt since July amid prospects for higher rates. The iShares MSCI EMerging Markets ETF fell 0.3 percent as of 11:23 a.m. in New York, extending a three-day slide.

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