Famed economist Nouriel Roubini has decided to put his macroeconomic market predictions to the test in the form of new exchange-traded fund. Roubini, who has worked at the International Monetary Fund and as a senior economist on the Council of Economic Advisers in the Clinton administration, has won the nickname “Dr. Doom” in some circles for his predictions of economic and market ruin. He is also one of the portfolio managers listed on the multi-asset Atlas America Fund , which launched last month under the ticker symbol USAF. Fittingly for a macroeconomist with a history of dire predictions, the fund is designed as a defensive portfolio, hedging against structurally higher inflation and climate change, among other risks. “You need a better defensive asset in a world where inflation is going to be higher, where there is a risk of debasement of fiat currencies, where there is climate change, where there is geopolitical fragmentation, where there is deglobalization and a variety of tail risks that are already materializing,” Roubini told CNBC. Roubini, who has a doctorate in economics from Harvard, has a long history in academic circles and the private sector. His list of famous predictions includes sounding alarm bells ahead of the 2008 financial crisis. Some of his other warnings have proved less prescient, though he was relatively early in warning of a virus-induced recession in 2020. His financial crisis call involved a warning about real estate in the U.S., but the new fund shows that he believes that sector offers some hedging protection in the current market environment. USAF’s holdings include sizable positions in other defensive ETFs, including funds tracking gold and short-term Treasurys, but its top single-stock holdings include real estate investment trusts like Equinix and Digital Realty Trust . Real estate has historically been a good hedge when inflation is rising moderately, because supply is relatively fixed and owners have the power to raise prices by increasing rent, Roubini said, noting that parts of the industry can also help lower climate risk. The portfolio management team will compare real estate investments to geographic data, down to individual counties and zip codes, to find REITs that are least exposed to climate disasters including hurricanes and floods. Real estate prices in areas that are less exposed to climate change have long-term upside thanks to population shifts, Roubini said. “Even a few hundred thousand people moving can have significant effects on home prices and real estate prices, including commercial real estate, let alone if we are going to be in a process [where] over time you’re going to have migration of millions of people,” Roubini said. The fund is able to buy other asset classes as well, including municipal bonds, commodities and alternatives such as derivatives and private investments. Betting on the U.S. While inflation and climate change are global issues, the USAF fund primarily focuses on the United States. The fund’s prospectus says it will direct at least 80% of its net assets into investments that are economically tied to the U.S. Atlas CEO Reza Bundy said that the fund is meant to be “complementary” to U.S. Treasury holdings, pitching it as another way for investors to bet on continued success for the United States but with a different risk profile. Atlas sees the fund competing to be part of the fixed-income sleeve of a traditional portfolio of 60% stocks, 40% bonds. The fund currently has about $6 million in assets under management and an expense ratio of 0.86%. Reza said the plan is for foreign investors, including sovereign wealth funds in the Middle East, to start investing in the ETF early next year. The fund has a position in the Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV) , a leveraged bet that the price of long-term U.S. government bonds will fall. Puneet Agarwal, Atlas’ chief investment strategy officer, said the position should help balance out other areas of the portfolio that would be hurt by a rise in interest rates. Growth of Active ETFs Roubini is far from the only high profile financial name to join the ETF race. Many star mutual fund managers, such as BlackRock’s Rick Rieder, have now added ETFs to their purview. Rob Arnott’s Research Affiliates launched a new fund earlier this year that tracks stocks that get kicked out of major indexes. And Ray Dalio’s hedge fund Bridgewater recently filed for an “All-Weather” ETF in partnership with State Street. The growth of active ETFs is due in part to a 2019 SEC rule change that made it easier to launch novel strategies in the ETF format. The shift is also part of a larger long-term trend away from open end mutual funds and toward the more tax friendly ETF wrapper. Through November, active ETFs have attracted $275 billion of new investor cash this year, according to State Street Global Advisors.
