WEBVTT - BlackRock's Tighe Likes Trade: Swap Treasuries for TIPS (Audio) 0:00:02.920 --> 0:00:06.279 Global business news twenty four hours a day. If Bloomberg 0:00:06.360 --> 0:00:09.440 dot Com the radio plus mobile LAP and on your radio, 0:00:09.720 --> 0:00:13.920 this is a Bloomberg Business Flash from Bloomberg World Handquarters. 0:00:13.960 --> 0:00:17.279 I'm Charlie Pellet. The Dow is lower, the SMP five 0:00:17.360 --> 0:00:20.919 hundred index and nez Dack both advancing right now, SMP 0:00:21.120 --> 0:00:24.960 up a point, Nestack oup ten, Dow Industrials down thirteen, 0:00:25.520 --> 0:00:28.480 SMP stalling just below the twenty one hundred level. Brent 0:00:28.600 --> 0:00:32.040 crude pairing gains after topping fifty dollars of barrel for 0:00:32.040 --> 0:00:34.839 the first time in six months. Brent crude right now 0:00:35.120 --> 0:00:39.000 forty barrel, down seven tenths of one percent. West Texas 0:00:39.000 --> 0:00:42.720 Intermediate thirty four a dropped there of point four percent, 0:00:43.159 --> 0:00:45.640 Gold down three fifty the ounce to twelve twenty a 0:00:45.720 --> 0:00:48.159 drop of three tenths of one percent, the tenure of 0:00:48.200 --> 0:00:51.360 ten thirty seconds that yield one point eight three percent. 0:00:51.840 --> 0:00:57.800 I'm Charlie Pellet, and that's a Bloomberg Business Flash. It's 0:00:57.800 --> 0:00:59.640 time now for the e t F Report, brought to 0:00:59.680 --> 0:01:02.200 you by Van Eck Vectors et f S. Expect more 0:01:02.240 --> 0:01:05.400 from your muni's target tax exempt income by maturity and 0:01:05.480 --> 0:01:09.600 credit quality. All with low cost ETFs. Visit vaneck dot 0:01:09.680 --> 0:01:14.120 com slash Muni van Eck access the opportunities. That's go 0:01:14.280 --> 0:01:17.160 to Katherine Cowdery for the e t F report. The 0:01:17.200 --> 0:01:20.880 Bank of Japan is taking an innovative approach to quantitative easing. 0:01:21.040 --> 0:01:23.360 It's using e t F s. The Bank of Japan 0:01:23.640 --> 0:01:26.440 now owns fifty nine percent of all the e t 0:01:26.600 --> 0:01:29.920 F sets in Japan. Bloomberg Intelligence analist Eric Altuna says 0:01:29.920 --> 0:01:32.200 that b o J turned to e t s after 0:01:32.240 --> 0:01:36.280 exhausting other more traditional forms of asset purchases. Now what's 0:01:36.319 --> 0:01:39.240 interesting is the last round of buying they did were 0:01:39.319 --> 0:01:42.920 products that they basically custom made with a asset manager 0:01:42.959 --> 0:01:45.480 there um. In fact, SMP was one of the index writers. 0:01:45.720 --> 0:01:47.440 They basically said, look, if we're gonna buy e t s, 0:01:47.520 --> 0:01:49.680 we want to buy e t s the track companies 0:01:50.200 --> 0:01:53.480 that are you know, investing in the human capital, physical 0:01:53.520 --> 0:01:56.240 capital like you know, capital expenditures. According to bel tunis 0:01:56.320 --> 0:01:57.880 that b o J is using its e t F 0:01:57.960 --> 0:02:01.480 purchases to send a strong message to Japanese companies to 0:02:01.520 --> 0:02:05.280 spend their money on people and capital instead of financial engineering. 0:02:05.640 --> 0:02:08.120 It's trying to eliminate some of the worst side effects 0:02:08.120 --> 0:02:12.959 of que including corporate cash hoarding, wage stagnation, and income inequality. 0:02:13.200 --> 0:02:18.400 That's your Bloomberg ETFF report. I'm Catherine Cowdery. You're listening 0:02:18.440 --> 0:02:21.400 to Taking Stock with Kathleen Hayes and Pin Fox on 0:02:21.440 --> 0:02:25.800 bloom Bird Radio. So what do you do with your money? 0:02:25.840 --> 0:02:29.840 As May often comes to a close. We've heard people 0:02:29.840 --> 0:02:32.280 tell us this week that two stocks are pretty much 0:02:32.360 --> 0:02:35.000 fully valued. We know bond yields are low and prices 0:02:35.040 --> 0:02:37.600 are pretty high. We've heard some people say, hey, maybe 0:02:37.639 --> 0:02:39.880 real estate is not a bad place to be. We're 0:02:39.880 --> 0:02:43.560 gonna put this question now to Heather loomas tie market 0:02:43.639 --> 0:02:48.880 strategists for Black Rocks Family Office, foundations and endowments, to 0:02:49.000 --> 0:02:51.720 get our sense of where things are and where they're heading. 0:02:51.840 --> 0:02:56.799 Welcome back, Good to CEO. So of where shall we start? 0:02:57.639 --> 0:03:03.079 Bottom line? You are dealing with very interesting universe of investors, right, 0:03:03.120 --> 0:03:07.240 so you're getting a window into hopes, fears, what where 0:03:07.240 --> 0:03:09.560 people think it might be good to go. Where are 0:03:09.600 --> 0:03:13.520 you seeing the most interest now, Heather? Right, the most 0:03:13.520 --> 0:03:17.600 interests we're seeing right now is in private market opportunities. 0:03:18.080 --> 0:03:20.640 When you think about the public market landscape, and I 0:03:20.680 --> 0:03:23.840 know black Rock recently came out and said for a 0:03:23.960 --> 0:03:28.120 sixty forty stock bond blend, you could expect something close 0:03:28.160 --> 0:03:30.760 to three percent for the next three to five years. 0:03:31.600 --> 0:03:34.399 That number is shocking to a lot of family offices, 0:03:34.560 --> 0:03:38.520 especially endowments and foundations, which actually have outflows which they 0:03:38.560 --> 0:03:41.720 need to take care of. Family offices have been earning 0:03:42.200 --> 0:03:44.840 a good amount of money and how they accumulated it 0:03:44.840 --> 0:03:47.160 for a while, and so they have an internal rate 0:03:47.160 --> 0:03:52.120 of return expectation. So into that environment, people are looking 0:03:52.160 --> 0:03:54.920 to the asset classes which haven't been bit up by 0:03:54.960 --> 0:03:59.440 central banks by the massive inflows which we're seeing across 0:03:59.520 --> 0:04:04.760 the globe. Is quantitative easing, and monetary policy continues into 0:04:04.800 --> 0:04:08.320 places where they can extract value, extracting a liquidity premium, 0:04:08.520 --> 0:04:12.040 and everyone's sitting on cash. Not just to be clear here, 0:04:12.080 --> 0:04:14.560 if you're going to earn an estimated three percent return 0:04:14.640 --> 0:04:17.440 on an annual basis, aren't you just earning the return 0:04:17.440 --> 0:04:19.320 in order to pay the fees to have someone get 0:04:19.320 --> 0:04:22.280 you that three percent in the first place? That is 0:04:22.320 --> 0:04:26.240 going to become so essentially important because if you think 0:04:26.240 --> 0:04:30.720 of that three percent is before taxes, before fees. If 0:04:30.760 --> 0:04:33.479 you are paying something like fifty basis points to have 0:04:33.560 --> 0:04:37.240 your assets managed in a six to seven percent return environment. 0:04:37.520 --> 0:04:41.240 When that becomes three, that number is a lot more important. 0:04:41.360 --> 0:04:46.520 So absolutely to your point. When we're talking um with 0:04:46.560 --> 0:04:48.520 our kind of you know, billion or even our billionaire 0:04:48.560 --> 0:04:53.440 family offices, they're saying what exactly are we paying. They're 0:04:53.560 --> 0:04:56.240 looking at all of their active managers on a line 0:04:56.240 --> 0:04:59.520 by line basis and saying, we are only going to 0:04:59.560 --> 0:05:02.480 be paying for active management when it is giving us 0:05:02.520 --> 0:05:06.480 outside returns absent that we must control the bottom line. 0:05:06.839 --> 0:05:09.599 It's kind of like, you know, into tough times for 0:05:09.680 --> 0:05:11.960 equity markets. You know, when you don't beat on the 0:05:12.000 --> 0:05:14.240 top line, you know, how do you make your earnings growth? 0:05:14.400 --> 0:05:17.599 You cut costs. So let's look at equities because the 0:05:17.640 --> 0:05:21.240 earning season was not so hot, and more and more 0:05:21.279 --> 0:05:24.039 people have said, well, you can probably make some money 0:05:24.040 --> 0:05:27.440 in stocks. More people are saying mid to high single digits. 0:05:27.480 --> 0:05:29.680 If you're lucky, then it's like we used to have 0:05:29.720 --> 0:05:32.240 a couple of years ago double digit gains. But you 0:05:32.320 --> 0:05:35.120 have to be more selective in terms of the companies 0:05:35.200 --> 0:05:37.640 you invest in as opposed tos just behind the market. 0:05:38.040 --> 0:05:39.920 What are you doing, what are you advising your clients 0:05:39.960 --> 0:05:42.520 to do yes, Um, and and that was you. You're 0:05:42.640 --> 0:05:44.680 you hit the nail on the head. You need to 0:05:44.720 --> 0:05:49.000 be thinking about the actual corporations which you are owning. 0:05:49.480 --> 0:05:54.560 We UM are seeing some value in the dividend grower space, 0:05:54.560 --> 0:05:58.960 so so paying dividends, growing dividends, clean balance sheets, with 0:05:59.080 --> 0:06:02.560 the ability to grow those dividends, so kind of an 0:06:02.720 --> 0:06:06.800 organic level of dividend growth embedded in some of those companies. 0:06:07.120 --> 0:06:09.440 You You're going to need to be very selective going 0:06:09.440 --> 0:06:12.160 into this time period because you know, as we've seen now, 0:06:12.360 --> 0:06:16.840 equit price to earning multiples with flat returns for the year. 0:06:17.600 --> 0:06:20.480 This is this is a harder game going forward. In 0:06:20.520 --> 0:06:25.200 your conversation with the representatives of these family offices and foundations, 0:06:25.680 --> 0:06:28.120 do you get the impression that they're excited about investing 0:06:28.160 --> 0:06:30.240 their money? Were they just looking for the return? There 0:06:30.320 --> 0:06:33.159 used to be a day in which people were excited 0:06:33.600 --> 0:06:36.680 about specific companies. Oh I've got to buy Apple because 0:06:36.680 --> 0:06:39.120 I'm so thrilled. Is that going away? And they just 0:06:39.120 --> 0:06:43.520 want to look at the number? Now? UM, I'm laughing 0:06:43.560 --> 0:06:46.000 a little bit because you're right, some of that excitement 0:06:46.080 --> 0:06:50.640 has been replaced with um, how can you do this 0:06:50.680 --> 0:06:52.760 for less, and I just want to know if I'm 0:06:52.839 --> 0:06:55.920 beating the averages let's say exactly when they hear okay, 0:06:55.960 --> 0:06:58.520 so we're going to earn less with more volatility. It's 0:06:58.520 --> 0:07:02.040 almost like, you know, this is the environment and we're 0:07:02.080 --> 0:07:03.760 all going to be working with it. But it's it's 0:07:03.839 --> 0:07:07.599 it's not a great one to be in. Certain things 0:07:07.720 --> 0:07:11.360 have excited family offices over the years. Those are private 0:07:11.680 --> 0:07:16.560 direct deals. Those still excite family offices. That in many 0:07:16.600 --> 0:07:22.320 cases is where principles have made their wealth over time, 0:07:22.640 --> 0:07:26.680 and it's still very interesting place to do business. Non 0:07:26.720 --> 0:07:30.240 syndicated parts of the market. UM where you're looking at 0:07:30.320 --> 0:07:33.560 unique deals which tends not to be correlated to public 0:07:33.560 --> 0:07:37.440 equity and fixed income markets. That's still exciting. There are 0:07:37.440 --> 0:07:42.200 places to which which um tied to people's passions, so 0:07:42.440 --> 0:07:47.880 the impact space, renewable energy, things like that, where there 0:07:47.960 --> 0:07:50.600 is an intersection for what they want to see in 0:07:50.640 --> 0:07:53.360 the world going forward, and they can also make an 0:07:53.360 --> 0:07:56.480 investment return in that call at seven to eight nine 0:07:56.480 --> 0:08:00.600 percent range. Those are things which get people excited in 0:08:00.680 --> 0:08:05.320 today's market. Uh, fix income. A lot of time that 0:08:05.360 --> 0:08:08.000 space didn't you and you're still in that space. Just 0:08:08.080 --> 0:08:11.239 you're just look at all the markets. More broadly, Uh, 0:08:11.520 --> 0:08:13.920 we have a story today on the Bloomberg about what 0:08:14.000 --> 0:08:17.840 a two billion dollar corporate bond bender. I mean, corporations 0:08:17.840 --> 0:08:21.240 are issuing debt like crazy. Do you see value in 0:08:21.240 --> 0:08:24.960 that space? And if so, we're um. We have gone 0:08:25.200 --> 0:08:29.600 neutral on corporate credit um and not to differentiate a 0:08:29.680 --> 0:08:32.360 view where we were more positive going into the beginning 0:08:32.400 --> 0:08:35.160 of the year. We think that you're not going to 0:08:35.280 --> 0:08:39.959 experience price return from here for the for the foreseeable 0:08:40.040 --> 0:08:42.719 time period until we change that view, and you're going 0:08:42.760 --> 0:08:45.720 to be dependent to bonding income. Uh. There are also 0:08:46.040 --> 0:08:51.400 risks corporate balance sheet risk out there, leverage, business model risks, 0:08:51.640 --> 0:08:56.160 and so from that standpoint, UM, we this would not 0:08:56.240 --> 0:08:59.280 be our top recommendations to clients to think about the 0:08:59.320 --> 0:09:02.040 corporate bonds space today. We would urge them to think 0:09:02.080 --> 0:09:05.040 about different places to find that yield, to find that return, 0:09:05.559 --> 0:09:08.440 and those are what those kinds of private, non syndicated 0:09:08.480 --> 0:09:10.920 deals that you're talking about something you know, but for 0:09:10.920 --> 0:09:13.440 for family offices, we could even just take it even 0:09:13.520 --> 0:09:16.200 even more basic. Communis are still okay. You know, the 0:09:16.200 --> 0:09:20.320 immunity treasury ratios look good. We're seeing good demand in 0:09:20.360 --> 0:09:24.679 this space. Picking credits, just like the question on equities 0:09:24.760 --> 0:09:27.880 is still critical even in a high quality space. So 0:09:27.920 --> 0:09:30.880 we like munis. But then yes, as we say, alternative 0:09:30.880 --> 0:09:34.360 sources where you could pick up an income stream which 0:09:34.400 --> 0:09:38.400 isn't correlated, which has some tax benefits. That in the 0:09:38.440 --> 0:09:40.520 private space, if you're willing to give up liquidity, can 0:09:40.559 --> 0:09:44.720 be very interesting in terms of so you're so, so 0:09:44.800 --> 0:09:48.360 get credit your neutral there? You do like munies. Does 0:09:48.400 --> 0:09:50.600 anybody have any reason invest in treasury these days besides 0:09:50.640 --> 0:09:52.520 foreign central banks and people just want to grab some 0:09:52.640 --> 0:09:54.800 yield in a world of negative bond yields. I mean, 0:09:54.840 --> 0:09:56.480 we see it at the very short end where people 0:09:56.480 --> 0:09:59.640 are just holding them as a cash proxy. Um, they're saying, 0:09:59.640 --> 0:10:01.480 you know, we want to keep some dry powder in 0:10:01.480 --> 0:10:04.640 case we see some market volatility. Everyone is still waiting 0:10:04.920 --> 0:10:06.960 for the next you know, two thousand and eight, two 0:10:06.960 --> 0:10:09.400 thousand nine to come, and that's still very real in 0:10:09.440 --> 0:10:11.800 the lives. So we see that there. But at the margin, 0:10:11.840 --> 0:10:14.080 what we've been saying, for people who are natural holders 0:10:14.080 --> 0:10:16.720 of treasuries and that's a position for them, think about 0:10:16.720 --> 0:10:20.200 swapping that into tips. You know, we're deflation is no 0:10:20.320 --> 0:10:23.360 longer something that we're worried about. We're not ready to 0:10:23.400 --> 0:10:26.160 say that we're in an inflationary environment, but it's certainly 0:10:26.160 --> 0:10:29.080 not dead. Thanks very much for coming in and spending 0:10:29.120 --> 0:10:32.480 time with us. Interesting. Heather Loomas Tie is the managing 0:10:32.480 --> 0:10:37.280 director and market strategist for Family Office, Foundations and Endowments 0:10:37.640 --> 0:10:40.040 at black Rock. Thanks very much for coming in. Thank you. 0:10:40.800 --> 0:10:43.199 This is taking Stock on Bloomberg. I'm PIM Fox my 0:10:43.280 --> 0:10:46.480 co host Kathleen Hayes. Kathy, We're gonna take everyone through 0:10:46.559 --> 0:10:48.920 to the clothes and uh, I think that we're going 0:10:49.000 --> 0:10:51.040 to take a look at maybe Dollar Tree stores. You 0:10:51.040 --> 0:10:53.800 know that they are up more than thirteen percent today 0:10:53.840 --> 0:10:56.240 after that earnings report. I want to take a look 0:10:56.280 --> 0:10:59.719 at Costcoe. PIM, that's another one that's leaving higher, Yes, 0:11:00.000 --> 0:11:02.960 by more than three and a half percent. We're gonna 0:11:02.960 --> 0:11:05.959 take you through to the clothes right here on Bloomberg Radio.