MW Howard Marks expects a lower return from the S&P 500 over the next decade. Here's what he likes better.

By Barbara Kollmeyer

Credit returns are dependable and reliable, says the billionaire investor

Investors looking for more solid longer-term returns should be looking at credit - and not banking on the S&P 500 to get them there, according to billionaire investor Howard Marks.

"From the S&P, you're not going to get the historic return of 10% a year for the next decade. You will get something less and if that's true, then the returns described from credit are quite competitive and dependable," Marks, co-founder and co-chairman of Oaktree Capital Management, said in an interview with India's Economic Times published Friday.

"Credit investments have historically had low yields. Now the tables have turned. High-yield bonds are at 7% ... private credit at 9% to 11%," Marks said. "These are very good absolute returns and competitive with equities earned contractually and independently."

In a blog post published Thursday, Marks expanded on that view saying credit returns from the latter are less subject to variability and uncertainty. Based on historical data, the current price-to-earnings ratio of the S&P 500 - around 21 - has offered returns over 10 years of between negative-2% and 2% a year, he noted.

That's as the yield on the 10-year Treasury BX:TMUBMUSD10Y is higher than the S&P 500's earnings yield, that is the ratio of earnings to price, the inverse of the P/E, he said. "And if Treasurys are poised to out-yield the S&P 500, high-yield bonds will do so to an even greater extent."

"The bottom line is that credit presently offers a better deal than equities ... even at today's spreads," he said. "Credit isn't a giveaway today, but it offers healthy absolute returns and is fairly priced in relative terms. This is true despite the narrowness of yield spreads."

"We'd rather buy at higher yields and wider spreads, and we may get a chance to do so ... or not. But that preference in itself isn't a reason for not increasing allocations to credit today," he said.

He said that view isn't limited to high-yield bonds, but senior loans, mezzanine debt, asset-backed loans, collateralized loan obligations, and private lending.

Marks is particularly keen on private credit, which refers to nonbank lending and nonpublicly traded debt. He said the asset class mostly emerged in 2011, in response to tougher lending conditions for banks after the global financial crisis of 2008-09. The economy hasn't seen a recession since then, so private credit hasn't been tested in a tougher environment.

But he doesn't believe that private credit "represents a systemic risk," since private-loan portfolios and owners are far less levered than banks were just before the crisis, and loan holders haven't sold each other default protection or other hedging, unlike banks did in the years before the crisis.

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In his interview with the Economic Times, Marks also touched on risks surrounding the world and markets. Stocks have been hammered this week owing to concerns about President Donald Trump's tariffs and other policies.

Marks said he views Republicans and President Trump as more pro-business than Democrats or the previous administration, and that the country's leader does have "very good objectives" in trying to eliminate waste, fraud and abuse.

"Trump wants to end that and there's nothing wrong on the face of it. But the question will come down to a) the implementation and b) the ramifications," said Marks.

But he said he'd rather see "fine distinctions made ... done carefully without too much collateral damage."

"The future is unusually unpredictable today. There is probably more likelihood of tail events than usual in both directions: negative if the implementation goes off the rails and positive if it's successful," Marks said.

-Barbara Kollmeyer

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March 07, 2025 07:00 ET (12:00 GMT)

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