- Marko Papic is the chief strategist at Clocktower Group, a Santa Monica, California-based alternative asset manager that seeds emerging hedge funds.
- Papic's focus on using geopolitical events to harness sources of alpha and market-actionable insights has led him to predict a global "race to zero" in the next decade.
- In an interview, he breaks down why green stocks are set to surge in a "decade-long mania" even after a more than 100% gain in 2020 and shares two other asset classes where investors can strategically position their portfolios.
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It is an understatement to say that Marko Papic has lived all over the place.
Born in Belgrade, Yugoslavia (today's Serbia), he lived in Jordan, Switzerland, Canada, and Texas before settling down in Santa Monica, California where he serves as the chief strategist of Clocktower Group.
The alternative asset manager and hedge fund of funds managed $1.1 billion at the end of 2019, according to its most recent ADV filing. It declines to disclose its current assets under management.
Papic's cosmopolitan upbringing has served him well for a career that entails both macro geopolitical analysis and actionable market forecasts. In particular, it has taught him that nothing is really unique.
"What I mean by that is that you need to be able to compare different societies in different situations to one another," he said in an interview. "And that really helps me in my job because it's very important to have a comparative perspective, whether it's a historical comparison or international comparison because it really allows you to understand that some things are unsustainable."
In his view, what's unsustainable will always be rebalanced. With that awareness in mind, investors will be able to see paradigm shifts and regime changes earlier and better than those rooted in a singular mindset.
The race to zero
Since the industrial revolution, global powers have engaged in a race to scale their geographical, natural, and demographic resources. But in the next decade, they will seek the "zero of everything," whether it's "zero negative externalities, zero carbon emissions, zero inefficiencies, zero energy imports, or zero foreign-sourced inputs," he argued in a new research note.
For Papic, the next paradigm shift where the so-called "race to scale" turns into the "race to zero" has already been set in motion.
Amid this international contest, Papic himself zeroed in on green technology stocks, which he believes are positioned for "a decade-long mania" even after their gains in 2020.
To be exact, the MSCI Global Alternative Energy index was up 109% while the S&P Global Clean Energy Index gained 143% in 2020.
Meanwhile, the $4.5 billion Invesco Solar ETF, a fund that investors often use to assess the performance of green energy stocks, returned 234% in 2020, according to Morningstar data.
A decade-long mania for green stocks
The reasons for Papic's bullish outlook on green stocks are twofold.
First off, he believes that global governments' plans to boost GDP growth through fiscal spending on infrastructure will simultaneously power the rise of green technology.
China, the European Union, and Japan have already announced plans to spend around $2.2 trillion on green initiatives and technology over the next decade. On top of that, there is also President-elect Joe Biden's plan to spend $2 trillion on tackling climate change over the next four years.
"This is going to have a huge legislative tailwind that I think is unseen in human history," he said. "When you think about mega projects like the US Interstate Highway System, the Manhattan Project, and the Apollo space project, they are all dwarfed in terms of how much money governments are going to spend on alternative energy."
The second reason lies in the geopolitical competition among global superpowers.
"China has tripled down on electric vehicles and battery development, and that creates a race," Papic said. "This isn't about ESG, this isn't about corporate boards deciding that you need to invest in ESG indices. This is actually about the markets sniffing out this massive policy and geopolitical push behind these technologies."
He continued: "So when someone tells me that 'but green stocks were already up 200% in 2020,' I'm saying, 'well yes, they're going to be up 2,000% over the next 20 years.'"
Positioning for the new regime
While the race to zero will see global powers seeking efficiency and reducing the consumption of non-renewable resources, the process itself will require using a lot of commodities.
That, in turn, could fuel a new commodity supercycle, Papic said.
"China has already invested in the coming Race to Zero and dominates the global supply of several crucial commodities, particularly rare earths. Other winners are Australia, Brazil, Chile, Peru, Russia, the US, Congo, Kazakhstan, and South Africa," he wrote in the research note. "The world will see the emergence of new conflict zones as Great Powers maneuver to secure supplies of the raw materials necessary for the Race to Zero."
In addition to the commodities themselves, Papic is also bullish on emerging markets, especially countries that are poised to benefit from the impending commodity boom.
"If I had to pick inside emerging markets, I would probably pick those that are much more tied to commodities," he said. "I think Latin America can have another decade that it had between 2001 and 2010. I can see them doing that well again given some of these big picture trends."
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