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Speaker 1: Joining our conversation now is Rick Reader. He is CIO

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Speaker 1: of Global Fixed Income over at Blackrock. Rick, I'm thrilled

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Speaker 1: to have you with us, and this is an ETF show,

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Speaker 1: but I have to ask you about the FED because

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Speaker 1: it has been a wild last week. Of course, we

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Speaker 1: got a surprisingly dubbish Jerome pal last Wednesday at the

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Speaker 1: press conference, and then the days that followed what we've

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Speaker 1: heard from John Williams, Rafael Bostic, Austin Goulesby, etc. Seemingly

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Speaker 1: pushing back against how the market interpreted Jerome Palell, what

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Speaker 1: do you make of all of it?

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Speaker 2: It was wild. I mean, the last couple of weeks

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Speaker 2: have been pretty incredible. So the Powell, I mean I

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Speaker 2: thought what was interesting most interesting about Powell is there

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Speaker 2: was no pushback on financial conditions easing, which was pretty stark,

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Speaker 2: contract to where they were a couple of weeks ago,

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Speaker 2: three weeks ago, or no reference to we still are

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Speaker 2: fighting inflation aggressively. And I was pretty surprised by it.

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Speaker 2: But then you know, markets took it dubbishly and including

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Speaker 2: pricing in that the FED would start cutting in March,

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Speaker 2: which I still think is really And but then you said,

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Speaker 2: I thought the one that was significant is John Williams

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Speaker 2: coming out that was unscheduled and coming out and saying

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Speaker 2: that the markets are being a bit presumptuous. So anyway,

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Speaker 2: I think the market reaction pulling back a bit today

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Speaker 2: reflective of I don't think Jarpwell meant to be that

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Speaker 2: aggressive about starting to cut this quickly, and so I

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Speaker 2: think today's retrenchment makes makes some sense to me.

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Speaker 1: And you are seeing the markets recalibrate a bit to that.

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Speaker 1: Let's wrap this into the reason we do have you,

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Speaker 1: which of course, is you launching your second ETF. Of course,

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Speaker 1: you've managed fixed income for quite a long time, but

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Speaker 1: you're relatively new to the ETF wrapper, and last week

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Speaker 1: you launched the black Rock Total Return ETF. Of course,

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Speaker 1: you manage total return strategies in mutual funds, and when

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Speaker 1: I think of total return, I really think of a

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Speaker 1: go anywhere type of strategy. And against that backdrop that

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Speaker 1: you just described with the FED, if you can go

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Speaker 1: anywhere in the fixed income market right now, where's the

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Speaker 1: most opportunity.

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Speaker 2: I mean, the one thing about total return, I mean

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Speaker 2: we're doing it quite frankly because we think the demand

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Speaker 2: in this rapper and this type of rapper for many

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Speaker 2: that are using models, and quite frankly, after a year

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Speaker 2: like this where people are looking at a balanced de equities,

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Speaker 2: total return makes a lot of sense. So the total

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Speaker 2: return tends to be we still model it to the

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Speaker 2: aggregate indux, but we're trying to outperform the index. So

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Speaker 2: what do you do today? Listen, some of the credit

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Speaker 2: sectors make still makes sense today. Both the investment grade

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Speaker 2: market we think makes sense, a bit of high yield

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Speaker 2: we think makes sense today, and an agency mortgage. Is

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Speaker 2: that you know, where we think there's some real value

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Speaker 2: today to take advantage of where we don't think there's

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Speaker 2: a lot of values Where we just talked about the

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Speaker 2: front end of the Yeld curve getting ahead of the

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Speaker 2: FED presumably that we've started to pull back on and

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Speaker 2: we're underweight there, but actually still think the spread spectors

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Speaker 2: you can create a bit more income than the index,

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Speaker 2: and that's where we think there's the best value today.

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Speaker 3: Rick, we recently caught up with JP Morgan, ASM Managements

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Speaker 3: Brian Leek, who of course is the global head of

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Speaker 3: ETF Solutions there and discuss the room that's available to

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Speaker 3: grow an active fixed income ETFs take a listen.

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Speaker 4: And you could see the ETF industry double from kind

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Speaker 4: of seven to fourteen fifteen trillion dollars, and I think

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Speaker 4: active could be ten to twenty percent of that. So

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Speaker 4: there's your one point five to three trillion dollars in

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Speaker 4: active ETFs.

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Speaker 2: Big starter there is on the fixed income side.

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Speaker 4: And you know, the thing that I hear from investors

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Speaker 4: is they're just underwhelmed with how fixed income indexes are constructed.

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Speaker 4: A fixed income index is going to wait the heaviest

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Speaker 4: debtor as the biggest component, and that's not how I

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Speaker 4: or you probably think about your fixed income exposure and

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Speaker 4: your portfolios. And so when you can use active management

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Speaker 4: to correct for some of those things provide that outperformance.

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Speaker 3: Rag, I want to get your thoughts on how big

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Speaker 3: you think this market can get now that the FED

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Speaker 3: pivot is happening.

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Speaker 2: Well, so, by the way, I agree with everything that

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Speaker 2: was just said. So let's take a couple of things. Firstly,

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Speaker 2: you know, active management fixed income generally outperforms. I've seen

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Speaker 2: numbers from morning Star that show that that's something like

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Speaker 2: eighty eighty five percent of manager's outform in fixed income.

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Speaker 2: The reason why is you get in fixing them, there's

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Speaker 2: sixty eight thousand securities. It's pretty extraordinary versus the S

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Speaker 2: and P five hundred. There are so many unique things

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Speaker 2: you could take advantage of in the fixed income market.

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Speaker 2: Your ability to build income and then manage your beta

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Speaker 2: in fixed income is one of the when I think

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Speaker 2: one of the key tools and objectives you can create

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Speaker 2: and which I think I think makes a lot of

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Speaker 2: sense over time. So I think active active fixed income

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Speaker 2: is going to grow quite a bit. I mean, the

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Speaker 2: growth of the mutual fund industry in fixed income has

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Speaker 2: been huge, and you know, we launched, as you said,

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Speaker 2: we launched our bank ETF back in May, and we're

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Speaker 2: pretty pretty impressed with how fast it's growing. And it's

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Speaker 2: you know, that's a fund or an ETF where you

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Speaker 2: can put a lot of income into it. You know,

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Speaker 2: we were running seven percent of the drop in rates,

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Speaker 2: we're still running mid to high sixes, which is super attractive.

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Speaker 2: And you know, one thing about fixed income, it's really

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Speaker 2: hard for the average investor to find unique commercial mortgage securities,

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Speaker 2: unique colo securities. It tends to be more opaque market

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Speaker 2: and so the ability to do that create a lot

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Speaker 2: of yield without a lot of volatility is something that

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Speaker 2: people crave from the both retail model driven and institutional and.

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Speaker 5: Rick earlier you mentioned the short end of the curve

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Speaker 5: and load duration. I want to get your take on TLT.

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Speaker 5: This fascinated us all year. We had twenty billion dollars

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Speaker 5: poured into it and it kept going down and down.

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Speaker 2: I think it lost eighteen percent.

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Speaker 5: People kept going in and it finally worked about in

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Speaker 5: the past month.

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Speaker 2: What do you do now?

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Speaker 5: Just curious if you like the long end of the

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Speaker 5: curve and TLT in particular, and what you made of

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Speaker 5: this year and all the flows of that went into it.

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Speaker 2: You've highlighted what I think is it's truly been the

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Speaker 2: most curious thing. The demand and like you say, I

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Speaker 2: mean the money was coming in. The markets We're going

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Speaker 2: down and the money kept coming in. It was really curious. Listen.

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Speaker 2: I don't think the long end of the Yeald curve

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Speaker 2: today is very attractive. If you talk about a four

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Speaker 2: percent long bond when you can get more than that

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Speaker 2: in the front and you don't have to take the

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Speaker 2: duration risk being back end of the curve. The thing

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Speaker 2: that's pretty incredible. If you go back in history and

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Speaker 2: think about a four percent long bun that's not that attractive.

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Speaker 2: You think about what normal term premium is you think,

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Speaker 2: you know, relative to history, that's not that attractive at all.

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Speaker 2: It's where where it's really attractive. I said, I didn't

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Speaker 2: like the very front end. I don't like the very

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Speaker 2: long end. It means I like the middle and you know,

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Speaker 2: I really like the belly of the yield curve where

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Speaker 2: you get that's the full chrome point for when the

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Speaker 2: FED starts easing. That's where the forwards are really attractive,

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Speaker 2: and that's where you can create a lot of return

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Speaker 2: and certainly on a risk adjusted basis. Like you say,

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Speaker 2: the demand that's come in on the back end of

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Speaker 2: the yield curve has been one of the most curious

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Speaker 2: things that I've seen. Now. One thing that is that

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Speaker 2: it certainly is happening. Pension funds that have done well

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Speaker 2: in their equities can now lock in these yields, So

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Speaker 2: there's some of that that's going on. But the sheer

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Speaker 2: size of that demand has been has been truly eye popping.

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Speaker 1: Okay, guys, write that down. It's the belly is where

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Speaker 1: you want to be when we finally get to that

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Speaker 1: pivot point. But Rick i'man to talk a little bit

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Speaker 1: more about you because Okay, you launched bank back in May.

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Speaker 1: I believe it was that was very exciting for the

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Speaker 1: ETF industry. Now you're out with your total return ETF again,

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Speaker 1: like I mentioned to strategy that you're very familiar with,

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Speaker 1: have been managing in a mutual fund rapper, would you

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Speaker 1: ever consider converting some of your mutual and fund strategies

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Speaker 1: just into ETFs.

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Speaker 2: So listen to They're different, they're different products and different rappers.

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Speaker 2: I mean, one thing in a mutual fund is I

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Speaker 2: do a lot of things. We're able to do a

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Speaker 2: lot of things around sort of besmoke financing. I do

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Speaker 2: a lot of hedging in the mutual funds that allows

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Speaker 2: me to keep our volatility relative to our relative to

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Speaker 2: our risk, real do our return at a reasonable level.

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Speaker 2: So I think, listen, I think the mutual fund industry

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Speaker 2: is going to survive and live live on for years.

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Speaker 2: And you know you can run a really really effective

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Speaker 2: strategy and mutual funds. You know, we run a fund

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Speaker 2: called SiO. It's our strategic income fund that is allows

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Speaker 2: us to create I mean we've created them as double

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Speaker 2: the return of the AG and half the volatility for

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Speaker 2: years and years, and because I can use so many

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Speaker 2: tools to do it. But listen, I think I think

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Speaker 2: people really like the facility of using ETFs, put them

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Speaker 2: into models, use them for tax strategies. So my senses,

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Speaker 2: the growth will clearly happen in the ETF form, But

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Speaker 2: I don't think. I don't like the mutual fund industries

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Speaker 2: going away anytime soon. Frank, I find it super effective

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Speaker 2: UH to manage UH, to manage portfolios with today.

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Speaker 3: You know, as we're having this conversation, I'm thinking about

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Speaker 3: how in the ETF world they're definitely natives, and then

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Speaker 3: there are tourists, meaning there are ETF people, and then

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Speaker 3: there are people with ETF. So here on this show,

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Speaker 3: Eric and Katie are the natives. I'm the tourists, But

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Speaker 3: increasingly the people with ETFs are now heavyweights in the

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Speaker 3: bond world.

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Speaker 2: Right.

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Speaker 1: Of course, we have Rick Reader who are in conversation

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Speaker 1: with right now, but we also saw pimco's Dan Iveson,

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Speaker 1: for example, also come out to the ETF Rapper this year.

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Speaker 3: So Rick, what do you notice? What do you observe

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Speaker 3: as a tourist that the natives don't necessarily appreciate?

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Speaker 2: So I take a couple of months. First of all,

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Speaker 2: I've been you know, my funds. I've used ETFs for

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Speaker 2: I don't know how many years. I mean, they're incredibly

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Speaker 2: effective to get in and out of it. And I

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Speaker 2: use the high yield market to use h ry G constantly,

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Speaker 2: l QD constantly manage my beta. You know, when I'm

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Speaker 2: waiting for new issues to come and I'm trying to

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Speaker 2: get some exposure, I'll use h y G when I'm

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Speaker 2: trying to ramp up or ramp down. So anyway, ETFs

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Speaker 2: are super effective and uh and you know we'll continue

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Speaker 2: to utilize them. Listen, I think the thing that is

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Speaker 2: being you know, having managed so many portfolios in different forms,

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Speaker 2: in many forms over the years, you know, you get

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Speaker 2: a sense for how do you run the style a

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Speaker 2: little bit differently in the in the ETF for total

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Speaker 2: return for the for the for black cart, total return

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Speaker 2: ETF for bank. You know, I'm using more products that

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Speaker 2: are more transparent so that people can replicate them, that

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Speaker 2: like to put them into models. But but you know,

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Speaker 2: to keep you know, one of the things we're doing,

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Speaker 2: keep the yield up, keep the diversification up in the ETF,

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Speaker 2: and do it similar to what you would do in

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Speaker 2: a mutual fund. But you know there's people design are

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Speaker 2: all types of forms to invest in. This is this

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Speaker 2: one I think is going to continue to grow. And

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Speaker 2: like I said, the amount that I trade not just

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Speaker 2: in by the way, not just in fixed income, in

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Speaker 2: a lot of the equity ETFs. I mean they're incredibly

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Speaker 2: effective in a portfolio. Manage your portfolio allocations, all right.

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Speaker 1: So it's not either or when it comes to mutual

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Speaker 1: funds versus etf So we can all co exist together happily. Rick,

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Speaker 1: that's a really nice place to end it. Really enjoyed

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Speaker 1: speaking with you. Thanks for your time. That is Rick

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Speaker 1: reader of course of Black Rock