167: The New Investing Playbook: Geopolitics First

19:09We're going for the allies in that. Now, who's the allies? Japan's a strong ally. India's a strong ally. Poland and Europe has a key component between Russia, Ukraine, and where is spending happening and where are some of the policies happening that are providing positive inflection, regardless of some of the outcomes there. But European infrastructure rebuilding, top theme as that becomes a conflict resolution. But if the allies in Asia, again, Japan and India, compares a growth in value, Japan is one of your preeminent value plays for international. Buffett's been buying Japan as one of the sort of other thought leaders who've been on our side on Japan.

19:50India's been out of favor the last 12, 18 months, conflicting with the higher energy prices. They are on the naughty list for buying the Russian oil for a while. But we think the long-term growth story in India is very good, and we actually think that they are a really good long-term partner ally of the U.S. So Japan and India pair well, but it's about the top themes that you're getting exposure to as well. But it is definitely underweight China to avoiding China.

20:18Robert Croak:And again, that was the GEOA ETF for specifically who could begin to benefit most from these countries trading with their allies versus just trading with whoever is cheapest. So we've talked about diversification a lot on the show, and I even alluded to it before, because I think the old playbook of diversification, especially now in 2026, is beginning to feel a little outdated, right? It was essentially stocks and bonds. Just get yourself, you know, 60-40 portfolio. Maybe you get a little international fun here or there. But now with everything shifting, it's a very policy-driven market at the moment.

20:51Robert Croak:Supply chains are moving. Tensions are rising. I'm just seeing what's going on in the Middle East still. Does that approach of a 60-40 portfolio, just stocks and bonds, does it still hold up in your opinion? And if not, what should investors be doing differently to diversify in 2026 and beyond? Well, when you think about the case for bonds today, you know, the bonds, we look at real returns is how we like to look at things, returns after inflation. And we can talk about what is the expected return for U.S. equities, global equities and bonds. The tips bond today, you know, the expected return on bonds is very close to its real yield.

21:28You don't get a lot of this valuation expansion as a persistent return. So the 10-year tips in the U.S. today is right around 2%. They taught us in school the rule of 72, 72 divided by 2. It's going to take you 36 years to double your purchasing power in bonds. It's not quite exciting as a return. So, you know, yes, it's a safety play. If I'm afraid of risk inequities, it hedges some of that. And with the inflation protection, I will get to keep up with inflation. But 2%, very tough to double your money. Now, you see, stocks are expensive. The S &P is around 21 times earnings while we're talking.

22:05That's a 5 % earnings yield. That's what we use as our real return gauge. So that, call it a 14 to 15-year doubling of your money. Definitely better than the 36 years in bonds. Now, you're hearing portfolios like the 60-40 should be 60-40 with commodities. There's been some people who during that out there, that sort of hedges some of the unique things happening in the market. One of the things Wisdom Tree started doing 2017 to 2018, we started looking at a concept called capital efficient portfolios, where we could add sort of unique sources of leverage on top, a way to more better optimize your portfolio.

22:43So you could have your stocks and bonds and then add diversifiers on top. I think that has been something we're seeing a few billion dollars come into as a way to do it. And we've got a bunch of combinations. So stocks and bonds, stocks and gold. One we did recently is tips bonds plus long short commodities. So the fund is called Inflation Plus, and it has a basket of tips and then adds a long short set of commodities on top. That is kind of just one of those alternative diversifiers that can be a unique addition to just a standard 60-40. You know, I'd say you're not going to bonds for a return.

23:23You're going for protection and hiding out. Inflation is top of mind. Not one of the key risks. I do think people are under allocated to commodities as a general conclusion. When I look at my European clients, they might have a 7 % to 8 % average allocation to commodities in gold. The U.S. investor, if I look at the ETF allocation, we're about$14 trillion plus in total assets in the world I operate in, the ETF world. Less than 2 % is allocated to any commodity. And so I think that is a subpar allocation. So the question is, how do you raise that? And I think some of those capital efficient ideas, we have a whole suite of these capital efficient ideas that can let you mix and match.

24:06And the whole point of them was to add a little prudent futures overlays, whether it's gold bonds or managed futures that are kind of interesting overlays.

24:16Robert Croak:That's awesome. So WTIP, the Wisdom Tree Inflation Plus Fund, I just pulled it up here, is essentially a way to have some, I think I understood it, some bond exposure with a little commodity exposure as well. And I'm looking at performance since June, when y 'all launched it, it's up 30%, which means over the last, what is that nine months of 30 % return as commodities, I'm sure continue to really drive a lot of that performance. I think that's, it's incredible 14%, you know, year to date performance in this WTIP ETF. I've never heard of this. And I'm so grateful that you're coming on the show and educating us in real time, how you guys are beginning to like innovate and think more about like the 60-40 portfolio.

24:58Robert Croak:Yes, maybe it serves its purpose for some people that want, you know, whatever with bonds. But if you want maybe a little sexier version of bonds, right, the WTIP could be that because it's now this blend between some bonds and commodities. Yeah, I think the struggle we've seen with commodities long only, they go, they definitely have some volatility that can be as high as stocks. And so people say, you know, So the commodity trend is not like equities where you have a set of cash flows that you can value a stock. Right. The Warren Buffett quote, gold is just the shiny thing. You could put all the gold in a few Olympic-sized swimming pools and I could shine it.

25:33But like, what does that get me? But they do play unique roles in diversifiers in portfolios. They have gold has provided long-term inflation protection, but also spikes in some of these commodity prices is a key risk. You see with energy spiking, that was one of the key risks for the markets this year. What I love about our inflation plus fund is that it's not long only, is that it will go long short. We identify trends in markets and it can short particular commodities if the signal flips. And so it has this, it's effectively tips, which gives you inflation protection. But the long short commodities on top, I would position it versus other bonds or other tips strategies, long only tips with that inflation hedge.

26:15But obviously, you know, the commodities has more juice, you know, than just a standard bond portfolio. But I think it's a nice way to add it into a into a portfolio besides because most people don't have direct commodities. As I said, two percent average allocation commodity is very, very low.

26:28Austin Hankwitz:Yeah, I love this, Jeremy, because, you know, Austin will attest. I've been beating on the table for years for people to get some exposure to commodities, but they just don't understand what that means. And, you know, so I've been talking about it for a very long time. Obviously, we've had a good run over the last couple of years, but the volatility definitely is there for commodities more so than stocks in most instances. But that's a crazy stat to me, only 2 % of people holding that amount of proportion of their portfolios in commodities. But let me jump into my next questions because markets have been dominated by a handful of massive tech names for a while now.

27:02Austin Hankwitz:But we saw the Magnificent Seven taking a beating at the start of 2026. and you've said that there are real opportunities outside of this group, especially as the global picture changes. So what are you looking at that most people either are ignoring or straight up don't even know exist in the markets so our listeners can know where these nuggets and these kind of newer things can be uncovered to be able to invest in? Yeah, so I'll give some quick comments just on the MAG-7, which I think have come down in some ways. I've been calling now NVIDIA a value stock. Actually, in one of our funds, we made NVIDIA the top holding because a few weeks ago it sold off.

27:44And I was looking at like the 19 forward PE, one of its lowest multiples maybe in a very forever kind of time period. And it was growing at a very fast rate. It was at least a market multiple, S &P multiple, but at forward growth rate, it's much, much higher than your average stock. Some of these value indexes had Tesla in the top five holdings. I will say a lot about like Elon having the most incredible innovator, but Tesla is not a value stock. And you say, well, how do they? It's 180 PE. By what metric is it a value stock? I'll tell you. This methodology from one of the top two index providers there is in the world, people will figure it out, looks at growth rates.

28:24And if it comes not to be pure growth, like IE, the growth rate slows down. So expensive, slower grower. Now you've got a weight in their value index. OK, kind of silly. If you if you're really trying to say or if you're defining, if you're allocating between their growth and value, understand why you want to have some stuff that is pure growth, pure value. Then you get this middle box and where do you allocate the weight to? Well, they get some big weight in the value index, but it's definitely not a value stock. So, you know, that index might have an 1819 PE a little bit below the market, but definitely not true value.

28:56I could look at stocks doing 4.5 % on average buybacks, 2 % dividend yields, 2.5%. So we're talking close to 7 % dividend and buybacks, 13 PE today for the S &P selling at 21. And these are not low quality companies. This is with profitability filters. So this is what we call our US value fund. It is focused on quality and shareholder yields. It is an active fund, so there is some discretion just beyond the model and NVIDIA being the top holding in that strategy as we call it a value fund. Value stock is an example of that. Meta also now value stock, I think, from many of these metrics. Tesla not a value stock on that score.

29:44But I don't think tech is really dramatically expensive. You know, it's the whole tech sector 24 times, median of the last 30 years of 22 times. They're growing faster than the market. You know, there's a lot of idiosyncratic growth stories there. But I'd say there's definitely pockets of value. That whole basket for U.S. value is 13 PE, quite attractive. And you're getting more companies. Well, everyone's worried that the software, SaaSpocalypse, as they call it, you know, a lot of those companies are doing a lot of buybacks. And so I think there could be good pockets of value there as well.

30:17Robert Croak:That is the WTV ETF, the Wisdom Tree U.S. Value Fund is what you were alluding to there for everyone listening and taking notes and trying to like find the tickers here. Because I want to make sure everyone can act upon if they are interested in any of these things. So you think, just to follow up on Robert's question here, that people are ignoring value at the moment with these, you know, P.E. ratios around that 12, 13, 14, 50 times compared to 21, 22, who knows how high the S &P got. You think that value stocks right now could be an interesting thing to keep an eye on is what I'm hearing. Yeah, I think that is.

30:51It's certainly not expensive. I mean, with the narrative that tech is so expensive, and I think there's pockets of tech that are increasingly showing up in that fund. And then the aggregate being 13, it's a very, I mean, the average P for the S &P historically, going back 150 years, was 16. So these stocks are selling at generally way below the typical valuation of the market. And you say, all right, well, some of these stocks are going away. The software stocks are now like your preeminent value dying stock. It hasn't showed up in the fundamentals yet. You can say, all right, well, the writing's on the wall.

31:25Adobe's earnings are going to crater. They're no longer going to need Adobe because we're going to do all things on Anthropic and OpenAI and all these new AI tools. Or maybe their Firefly AI actually is really dramatically growing. They figure out how to get AI to their benefit. Maybe they don't need as many employees. maybe they actually can compete over time and their revenue is stickier than people fear. And then single digit PEs getting close to it and big buybacks, that might be a powerful, attractive combination.

31:54Robert Croak:I completely agree. I am very much in the value camp myself right now as I look around my own portfolio and thinking about what stocks I'm actively buying. I love scooping up shares of Amazon after it gets beat down, trading at the lowest EBITDA to enterprise value it's traded at in years. I actually was talking about this with Robert just the other day, looking at the price to operating cashflow multiple right now for Amazon. It's trading at 17 times operating cashflow, which is lower than the depths of the 2022 bear market, right? So like that's the type of value I'm sure that you guys got going on here in the Wisdom Tree US Value Fund.

32:34Robert Croak:But listen, I'm right there with you. I think value is very important as we see these names that are the opposite, right? They're just going vertical on these stock charts. It's like, I don't want to touch any of that. Give me the stuff that's undervalued, historically speaking, that are doing really well and sort of forgotten as it relates to this AI bull market we've been in for the last three or four years. Very much. I agree with that. We ended up selling Walmart out of that fund. That's your Walmart versus Amazon. I think that is the classic valuation story. And I'm with you. I don't think we've added Amazon yet to that value fund, but that is something we'll be looking at.

33:10Austin Hankwitz:Wow, what a great conversation. Stepping back, though, it really does feel like politics, policy, and markets are kind of all tangled together in a way they've never been before. So for regular investors, Jeremy, trying to make sense of all this, what's the biggest mistake you see people making? Because we always see these knee-jerk reactions with their portfolios when they see these clickbait headlines and they just overreact all the time. So walk our listeners through what you see in your world as the biggest mistakes the everyday retail investor is making. Well, the world seems scary out there.

33:44And with all this conflict, it's very tempting to say, hey, I just don't want to take any risk. I go to cash and you try to sit on the sidelines. But once you do that, it's also very tough to get back in the markets because the world is really always risky. And we do have worked with Professor Siegel from Wharton for the last 25 years. We've got a book, Stocks for the Long Run. It helps bring comfort to the long term returns on the market. And so I'd say, you know, getting too defensive in the moments where things look very bad tends to be the worst emotions. But also these conflicts, as we talked about, don't have to just be getting in defensive because there's risk around the world.

34:25There's a lot of places where you can find upside catalysts from all these negative headlines. And so I think things like that geo alpha opportunities we talked about is one way we can help you manage that. But, you know, these other themes, the things like the inflation plus for the inflation risk, inflation is the top of mind risk, I think, sort of rising commodity prices being the key driver of that risk. I think that is people been under allocated to that. So building well-diversified portfolios, not overly focused on the U.S., you know, 80 % type U.S. allocation is often what we see. The world used to be 50-50 U.S.

35:02foreign. Now I think the benchmark ACWI, all-country world energy is 60-40, but most people have nowhere near 60-40. Our geo-alpha is more like 50-50, that fund that we talked about. So, you know, I think being globally diversified still is important. The innovation is going to come from there. as I talked about the defense tech super cycle, come bring it all together. I do think there is a good case for long term international allocations. And so don't always stay focused in the U.S. and don't get too defensive as these headlines try to scare you out of the market.

35:31Robert Croak:Now, before we ask Jeremy our final question, Robert, Goldman Sachs Research just published something that went viral in the media. They're calling it the return of physical assets, specifically these tangible assets that cannot be disrupted by AI.

35:44Austin Hankwitz:Yeah, Goldman says that this one bucket from the report has outperformed capital-like companies by roughly 35 % since the start of 2025. 35%. At the same time, the software sector is currently down about 30 % from all-time highs. The report basically says the market is repricing what things are worth today based on whether they're physical and hard to replace or just digital and vulnerable to disruption.

36:10Robert Croak:They're calling the winners heavy assets with low obsolescence. or HALO as an acronym. And we were reading the report and thinking, what should we see in this analysis? Blue chip artwork. And here's why. Because there's scarce supply for artists like Picasso and Basquiat. And while software valuations began to fall, a Clint painting in 1907 just sold for$236 million in November. Obviously, this is an outlier, but still the highest price ever paid for modern art at auction. So how about that for low obsolescence?

36:41Austin Hankwitz:I mean, that's the thing. The ArtPrice 100 Index has outpaced the S &P 500 by 64 % from 2000 to 2024. Pretty amazing stat. And we've been using today's sponsor, Masterworks, for years. You guys have heard us talk about it. And they let you invest in shares of museum-quality artworks featuring Basquiat, Banksy, and Picasso without having to spend millions of dollars. And this is a compelling investment most people couldn't possibly access without Masterworks. Since 2019, Austin, this is a crazy stat as well, over 70 ,000 members have invested in over$1.3 billion across more than 500 artworks. And across 26 exits to date, investors have seen net annualized returns like 14.6%, 17.6%, and 17.8%.

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38:08Robert Croak:Again, that's masterworks.art forward slash rich habits.

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38:22Robert Croak:All right, Robert, let's now jump back to our interview with Jeremy.

38:24Austin Hankwitz:So, Jeremy, you summed it up well. Give us one sector you're super excited about for the next two years. Well, it's hard to say with all that stuff happening in defense, the drones. It's hard to not be in the drone technology, I think. That's the key area that we see a lot of real interest in. Physical AI and drones is a place we really want to be.

38:48Robert Croak:So do you guys have a drone ETF? Oh, yeah, you do. Don't let me sue to a theater near you.

38:54Austin Hankwitz:Does this drone technology ETF, do you wrapper in the Joby Aviations and the Archers and all of them that are in this industry of these ET vols and doing all of that? We're definitely looking at all these things as we think where the technologies are going. It's going to be some combinations of the humanoid supply chain, drones, and all applications of physical AI. So we will be looking at all three of those subsectors for inclusion in our indexes going forward there.

39:21Robert Croak:I can't wait for that. That is so cool that you guys are bringing a wisdom tree, physical AI, humanoids and drones ETF here to the United States. So cool that you all are doing that. And thanks for alluding to that. I don't know if that's public knowledge yet, but it is now. I was going to say you heard it here first. Public filing and the index is live and we do have a fund in Europe. Very cool. Jeremy, thanks so much for joining us on this week's episode of the Rich Habits Podcast. We're so grateful to get industry experts like you on the show, talking with hundreds of thousands of retail investors across all different platforms and mediums, because this is going to get shared far and wide, not just on the show, but newsletters and on X and Instagram and clips and everything like that.

40:04Robert Croak:So we just love that you're able to come here and say, listen, Austin, Robert, y 'all don't have to be the geopolitical experts. I'll be that. And I'll tell you and build products that will allow retail investors to invest toward these themes that we've seen coming a mile away, like the Europe and Asia and now this drone stuff. And then, of course, WTIP, like you guys are crushing it. Thanks so much for joining us, Jeremy. And hopefully we'll have you back soon. So much fun. Thank you so much. Pleasure being here. Robert, I don't think I've been more jazzed to add half a dozen ETFs to my watch list and my arsenal, right?

40:38Robert Croak:I'm genuinely so excited about this one, the WDAF, the Wisdom Tree Asia Defense Fund. Again, 26 % year to date. It was launched in September of last year. It's crushed it. Then this Wisdom Tree Inflation Plus Fund, where you're looking for some stability that's not bonds and doesn't have that duration risk. There is some really cool stuff that was talked about in today's episode. I hope all of you took notes and you're now going to go take action because, again, I feel like I have a renewed watch list and a renewed arsenal of different ETFs to pull from out of my back pocket as it relates to, oh, yeah, I do want to have some exposure to that in my portfolio.

41:18Robert Croak:I should put$5 ,000 or$10 ,000 into this Asia fund or this Europe fund because I did see that Wall Street Journal headline about Europe pulling out and all these other different things. And it's just awesome. And I'm humbled that people like Jeremy join us on the show to educate us, Robert and Austin, but also our audience. And we're so grateful to have brought together everyone here on this episode. And it's just such a fun, cool opportunity to do this.

41:43Austin Hankwitz:Yeah, 100%. That was an incredible episode. And I just love that we get to bring on the smartest people, the experts, the giants in their fields around the country to help us really educate our audience on all things business, finance, mindset, and personal finance, more importantly. So what a great episode. And Jeremy just crushed it.

42:05Robert Croak:And I'm excited he admitted that they're working on a drone physical AI humanoid ETF. How sick is that going to be?

42:14Austin Hankwitz:Man, I can't wait till that comes out.

42:15Robert Croak:Everybody, thanks so much for tuning into this week's episode of the Rich Habits Podcast. And please, if you thought this episode about geopolitics was interesting and you and your friends are talking about this or you know someone who's really into this defense super cycle or whatever, share this episode with a friend because we really think some of the conversations we had today are going to be really important and really beneficial and valuable to a lot of people, not just listening right now, but people in your network that are interested in learning more about Asia. in Europe and drones and humanoids and like all this stuff.

42:48Robert Croak:Like it's really interesting stuff. So please consider sharing it with a friend. Consider subscribing to the Rich Habits newsletter, joining us inside the Rich Habits Network and leaving us a five-star review on Spotify. We've taken the liberty to find all of the tickers and websites for all of these ETFs by WisdomTree. They're going to be linked in the show notes below. Go learn about it. Go do your own research, read the prospectus, do all the fun stuff. You all are educated investors as well. And with that being said, we'll see you on Thursday.