Towards a backdrop of what Jeremy Grantham, co-founder and long-term funding strategist of Grantham, Mayo, Van Otterloo & Co., forecasts for the US in 2024 as disappointing income, a weakening economic system, a gentle recession — at the least — and a troublesome yr for the inventory market, his chief recommendation is: “Keep away from U.S. shares.” 

That’s what he tells ThinkAdvisor in a latest interview, though he additionally talks about alternatives. For the perennially bearish investor, these embody Japan and rising markets. In the US, Grantham factors to high quality — “Crucial inefficiency within the U.S. market,” he says — local weather change, sources and ultra-cheap equities.

The primary exchange-traded fund at GMO, the Boston-based asset administration agency, was launched in November. The actively managed GMO U.S. High quality ETF (QLTY) focuses on high-quality shares.

Within the latest interview, Grantham additionally provides his long-term outlook for synthetic intelligence.

“What I focus on apart from bubbles are long-term, underrated negatives,” he says. “And my God, there’s a wealthy assortment of negatives proper now.”

Listed below are highlights of our dialog:

THINKADVISOR: What are your prime predictions for the economic system and inventory market in 2024?

The negatives I’ve been speaking about for a yr or two are nonetheless coming down the pipelines. Most of them will ultimately happen.

The economic system will get weaker. We’ll have, at the least, a gentle recession. Income can be disappointing. The inventory market could have a troublesome yr.

How ought to monetary advisors put together their shoppers for all that?

If you need industrial recommendation, monetary advisors ought to at all times be madly bullish! That’s clearly the easiest way for them to run a enterprise.

If it’s your personal cash, nevertheless, I needs to be fairly cautious.

What particularly do you assume will happen within the inventory market this yr?

Returns on U.S. shares can be disappointing. Returns on non-U.S. shares in all probability can be pretty near regular.

I might keep away from U.S. shares. They’re virtually ridiculously increased priced than the remainder of the world — about as massive a spot as there has ever been.

And the revenue margins are about as excessive as they’ve ever been in comparison with the remainder of the world.

That’s doubtlessly double jeopardy as a result of they will reverse both individually or collectively.

What non-U.S. inventory sectors do you want?

Japan, which could possibly be completely affordable. Rising markets are very low-cost compared to the U.S.

Are there any alternatives in any respect in U.S. shares?

If you must [invest] some huge cash within the U.S, these are the locations to [go]: high quality, local weather change, sources and ultra-cheap shares.

High quality is at all times a good suggestion as a result of it’s very reliable in a bear market. High quality is an important inefficiency within the U.S. market.

Triple-A shares have at all times been mispriced, however they’ve outperformed. And so they’ve finished notably nicely over the past yr.

Why?

As a result of they’re boring. In a bull market, you need to personal the Magnificent 7 shares [Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla], not high-quality shares as a result of they appear too boring.

However in a bear market, their very boringness is a sexy characteristic.

Why do you just like the local weather change class?