Debt ETFs Could Grow to $2 Trillion: BlackRock’s Tucker

so it's completely different. Matt Tucker, head of I Shares America's fixed income strategy at black Rock, the first portfolio manager for a fixed income et F How much the world has changed since then? Right? Quite a bit? Good morning, Lisa. Yeah, you know. The joke I make is that I was the first PM on the first fixed income e t

f B. At the time, nobody cared. Right now, Well, but one day I want to ask you about, especially as the total a U m asset center management and fixed in comm e TF swells to eight hundred billion dollars, where do we go from here? Are we sort of past peak growth for this industry given the fact that rates are rising, or do you see this a total significantly increasing over the next few years, you know. A For me, I think the joke is that we're still

in the early innings. Right. If you look at the market so global fixed in com ets, as you said, it's over eight hundred billion. The fixed income market is over a hundred trillion dollars, So less than one percent of all the bonds and kind of bond exposures in the world are in ETFs, but so many of them aren't even that liquid. So how much is sort of ETF a bowl? I think a lot more, um, So

give us some projections. So I think in the next five years you could see this will easily cross a trillion and probably approached two trillion globally for fixed in com ETFs. And we're still growing at pretty healthy fift year growth rates um. Things like So, I think I have to look at a couple different trends. So one is you're just seeing more adoption of e t f s as a way to invest in fixt income markets. Right, they do a lot of things that you can do.

The one you can do the ETF you can't do with the mutual fund or a bond, right, But at the same time, you do have kind of these shorter term periods where you have like rising rates that might cause some pullback and fixed income, but that doesn't diminish the overall trend, right, I mean, go back to thirteen, the fan went, he had the taper tantrum. Rates went up, people pulled money out of fixed income ETFs. Money came out, but they went back in in fourteen, fifteen, sixteen, seventeen.

So you're gonna have these short term pullbacks, but long term, I mean, the trend is still. I think you're gonna still see adoption because there's still so many investors discovering bond ETFs. So where's the biggest opportunity, where's the biggest growth could come from? So I think the biggest growth is this move towards model portfolios that's happening in the wealth space, right, so so many wealth managers smart smart data, well not even a smart data. So to put that aside,

I'll I think there is a growth area. But if you put that aside and just say kind of bread and butter, how investors invest today is changing. So it used to be that a portfolio manager, say it a say called a financial advisor would go buy a couple active funds and say, Okay, that's my bond allocation. Now they're saying, you know what, I can use e t F to actually build my own exposure at the client level, so every individual investor can have a customized fixed income portfolio.

That trend is still growing. I think it'll be a ton more adoption of body tfs around that trend alright, So, certainly there has been a lot of growth in government bonds. Certainly there's been quite a bit of growth in corporate bonds. But when it comes to the risk of your debt high your bondy ts, for example, the assets have kind of stagnated. It seems like recently there's been sort of a leveling off, and even as volumes increase in institutions use it more, it kind of has seems to have

reach a saturation point. Do you think that that's the case. Do you think that they're sort of done growing. I'm much sure they're done growing forever. I think at this part of the cycle. Though, if you kind of look at who's using them right now, you have a lot of institutions, as you mentioned, using high O dtfs, the liquidity is very strong. Um there, there's kind of enough float out there to kind of support the liquidity that's

out there. I think if you had a period where investors started to allocate more to HIE out as an asset class, you'd see it grow. But honestly, where spreads are right now and we are in the cycle, you're just not seeing a lot of investor to and an appetite for high yield um. Different part of the cycle that changes, I think they grow, but I think at this point it's hard to imagine it would grow, right just like you're not seeing growth in highled mutual funds

or other HILD vehicles. So, Matt, what do you think of bitcoin ETFs? We don't have any yet. I mean bitcoin has got a hold of the problem and that no one's quite sure if it's a security or not, right, and so kind of tell you to fine. If it's a security, it's hard to actually put it into something else which is a security. So I think the regulators have a lot of work to to kind of figure that out and figure out how to legally treat bitcoin.

But once you actually have it established, the rules are established, sure, I can see making its way to do an E T F as long as it was eligible. Well, just talking about that, I'm wondering with some of the derivatives that have been used in e t F. Some'm thinking of an E t F complex that has credit default swaps as the backing. It's just sort of a derivative of a derivative. Does that start to get you nervous or you know, with the right parameters and the right holdings,

it's fine. I think as long as you structure and manage the risks appropriately, it can be fine. Right, so as you can imagine AID and all these things. I think there are actually in the market credit fault swap you know, back t tps. But as long as those are fully collateralized, there's not a lot of leverage, I

think it can work. I think if you started getting into layers of leverage, I think that's the lesson of ten years ago, right, that's when you start to create these structures that can unwind quickly in a crisis, but fully collateralized, fully back whether you hold a bond or a derivative, it shouldn't matter much. Actually, are there bad actors in the E t F world that are doing things that you think are imprudent? That's always a tough question. Um, I like to I like to make your life difficult.

I think there are more and more actors in this space. Right so I sit in a seat to your point where I've been doing this for more than sixteen years now, right so I take kind of a long lens on this where I think there are very good providers who put out very good products where they understand their risks and how to list them, like black Rock for example. Not to make this commercial, but yeah, so I feel like when we've been doing this so long, we understand

this and understand how to do it. As you get new players market, you can't name names, but but I think you could firms that don't really understand the underlying don't understand how to create funds. I think there's risks like any industry, right you get more players in But but what kind of reputational risk is there to you and to your firm given the fact that there are

more players, some with less perhaps prudent standards. Um, I am something that we definitely think about and talk about, right this This idea that if there was a bad actor who made some big mistake, there could be some taint the e t F industry. That's kind of a tail risk that every industry has, right, But I think that the forces pushing the growth of ETFs are strong

enough that the industry would weather any such event. I'm not really concerned about as a long term risk, but as a short term pullback or cause for concern, or an area where you might have to educate more. Yeah,

I mean there could be something. If you look at leverage inverse funds classic example, right, they've gone through some periods that they've had a lot of scrutiny from regulators from investors, and when that's happened, we've gone out and done a lot of education to help people understand, like, these are what these securities are, this is how they operate. These are risk you should worry about. And as long as we keep doing that in educating the market, I

think we're fine. Matt Tucker, so good to see you, like the beard. Thank you. Matt Tucker is the head of I Shares America's for fixed income strategy at black Rock. He was the first portfolio manager for a fixed income et F. He said people didn't really care back then

nearly two decades ago, but people certainly care today. When there is eight hundred billion dollars in fixed income et fs, and definitely this is an increasing area where people are seeing both liquidity and an ability to invest in debt at relatively low fees. All focused today on marijuana, in particular Till Right, the Canadian cannabis company that has searched four hundred percent in just months and is now more valuable than American Air, Clorox and CBS. So who's hearing coaching?

Perhaps it's Sam Massuchi. He joins us now. He's founder and chief executive officer of e t F Managers Group in Summit, New Jersey. Sam, thank you so much for being with us. You have an exchange traded fund that invests in marijuana companies. How has it benefited from the recent popularity of all things marijuana. Well, the fund, which was launched by the way at the end of December last year with seven million, is now over six million in assets. We had a thirty million in UH you

know since August. UM it's had a record high yesterday and we're up mid August. So all of this positive news, whether it's related to UH til ray, the recent canopy growth transaction, UM, you know, growing global acceptance of marijuana is really helping the funds and investors in the funds. How concerned are you about deploying that cash because there's sort of a limited number of candidates here to receive it, certainly in the public market. Yeah, I mean currently the

fund has thirty four hold things across the globe. UM. The number of opportunities and target companies I think will continue to grow as again there's more regulatory certainty around the space and more companies UH start to enter. So I think the universe of stocks is just going to

keep growing. I mean, how do you define a marijuana marijuana stock when a company like Coca Cola is thinking about creating a drink that uses one of the ingredients in cannabis to provide certain benefits or effects, and when the big tobacco companies are behind the scenes trying to lobby for legalization and create throw networks. So what we do is we UM And by the way, this is an index based fund. The index is produced by Prime Indexes and we manage the portfolio to mass the index.

But the index is actually split up between pure marijuana plays as well as companies that are becoming very involved. But it's not their core business. I think Scott's Miracle could grow, which is one of our holdings, is a good example of that. Philip Morris is another. So it is unique in that it is a pure play. It does offer access to companies that are not UM only in the cannabis space, as I said, in like a Scots or a uh you know, some of these other

funds Philip Mars. But it does offer this kind of access that benefits from the growth in this space, investor demand and certainty around regulations. So, Sam, you are the first cannabis et F in the US. Are you seeing a lot of other E t F providers follow on and try to get in the game as well recently? Um, I'm not. I mean we're the only pure play in

the US. UM, there is a pure play in Canada. UM. We have the benefit of having first mover advantage as of all of our funds, our first mover UM and so this is a very first mover driven business E t F thematic ets in particular. So it's not to say that others might not get in all, but you know, we have that space. How concerned aregue that this is

just a passing fad? That this sort of is a rolling ball of money that will roll out of the cannabis space as we get more certainty around regulations and get a clear sense of the winners and losers here. Um, I don't think it is. I think it is an industry and really within its infancy and again around the globe, people are learning more about the medicinal properties. It's being used for things like the treatment of children's epileptic seizures,

chrone disease, It's weaning people off of opioids. So certainly the medicinal side of it will continue to grow as we better understand the science and the benefits. One thing I don't understand, though, is that's not where the real growth opportunity comes from, right, I mean the real growth here could be from recreational use, where it puts the cannabis industry on par with the alcohol industry or the tobacco industry. Correct. Well, well, I I don't know that

I agree with that. I think there's there There are is two pronged growth, which is a benefit to investing in this space. Sure, there is a recreational side. There's less acceptance of recreational certainly within the US and globally than medicinal, but there were very large companies doing some tremendous work in the medicinal space, all benefiting from marijuana, particularly the CBD components of the cannabis plant. So now I think you're gonna see a lot of growth both

in both sections, which benefits the fund either way. Sam, who are the investors that you're seeing put money into your fund for the most partment, institutions, individuals, all of the above. I mean we literally have hundreds of thousands of investors in the fund. The ticker, by the way, is m j UM. It's a stock that that you know today. It's a you know, it's a forty four

dollar and thirty cent stock. So I think what it's benefiting from is a lot of people wanted to invest in this space, but they wanted to get away from single stock risk. When you buy a portfolio of thirty four thirty six stocks, it's giving you access to the theme, but they're not having to do the research to pick the right horse. This is a fund that does that

for you. Thank you so much for joining us. Really a good time for for mj for your fund, UH in a really compelling time as we watched the shift from illegal to select legality and potentially beyond. Sama Succi, founder and chief executive officer of et F Managers Group in Summit, New Jersey. MJ invests in a range of cannabis focused companies, UH, and it's just interesting to see just how much these stocks have absolutely skyrocketed this year. M J up nearly thirty seven percent year to date.

Till Ray, of course, is rocketing past some of the hundred year old companies that are mainstays in the broader US equity in disease. We have the chief ex oecative officer of Auto Nation who started as a mechanic at a mar Cities Benz dealership and has risen through the ranks steadily to become the CEO, and he joins us here in our eleven three studios as well, of course as Craig Trudel, us Auto's team leader based in New York. Here for us at Bloomberg News, Mike, thank you so

much for being with us. Mike Jackson, UH, executive Chairman of Auto Nation. The announcement today that you are going to retire as CEO and help find the next leader, was this decession hard for you? To do now. I've been thinking about it for us some years. Uh. The company is in a great position, so there's a good

window for a transition. And next year I'll be seventy years old and we'll have been CEO then for twenty years, always sort of like breaking the rule of ninety and so I think it's uh uh the right moment to uh kick off a transition to an exciting new CEO and UM the boards taking responsibility for the recruitment and selection of the next CEO. I'm sure it will be an outstanding, exciting, vibrant UH leader to join Auto Nation. And my contract has been extended uh through as executive chairman.

So I'm excited myself to start an exciting new chapter with the company. So, Mike, before we get into all of the succession planning, I'm just wondering going forward, you know, is the used car sales business going forward going to look very different from the one that you grew up in. Well, there's no question that's very different, and we've had a

part in changing it. We've branded the company Auto Nation uh coast to coast, and we moved to one price in all our pre owned operations across the comp ay and our customers absolutely love it. It's how they want to buy cars. It's and and our associates love eliminating all the negotiation and haggle and be able to do it much quicker. So if I look at our second quarter for pre owned, uh, we're in that wonderful quadrant where we have higher volumes at higher gross margins. Yeah, Greig,

come on in here. Yeah. And it's hard to talk about all the change on the used car side without talking as well about all of the changes on I'm sorry, I'm the used car side without changes on the new side. Uh. And maybe the biggest story in that respect for some years now has been Tesla for a lot of people, and this idea that can the the automaker sort of circumvent the franchise model that we've come to know in the US. How is that going for Tesla at this point?

In your view? Well, how how's it going for Tesla? Period? I mean I have to you have to tip your hat. The is is good for a luxury all electric vehicle, and they were there first, and they've built a brand that almost as a cult following They've never been able to make money doing that. And their capital structure is absolutely scary. Uh So the sustainability and viability is very

much open to question. Now. As far as their distribution model, it's not what I would have chosen, but this is America. I believe in free enterprise. If that's how they want to do it, fine, I would observe that the rest of us have electric vehicles coming in big numbers over the next several years. Um Audi just launched its Etron

yesterday in San Francisco. It's absolutely sensational. So these are very compelling electric vehicles and for the first time, on top of everything else, Tesla is going to have real company Titian and Elon Musk said that he was in production hell last year. He recently said he's in deliveries hell. Is that a hell that could have been avoided had he not sort of snubbed his nose at the franchise dealer. Greg I said this years ago. I said it for

a boutique model. What he's doing is fine. As soon as he wants to do value, it's going to be an issue. Well, here we are. We're now at the issue. It is hell and um you know, all you have to do is see these Model three sitting all over California. And yeah, so, Mike, I do want to get your

your thoughts. The automation shares are down quite a bit this year, but down about and there's been a lot of concern raised about how we've reached peak autos and we've turned to the corner and we're starting to see some wobbly sales. What's your view there and do you think that it's going to be a rocky road forward

for the entire auto industry? Well, I was always very frank that I think I said it coming out of the Auto show in something like that, that uh, auto new vehicle sales are not going to climb forever, uh, and that they're going to level off somewhere in the high sixteen million units. And that's exactly what's happened. There's been a very major shift though towards trucks, which I think is permanent. In a month of August, the mix was as vehicles to find his truck. Do you think

it's permanent? I think it's permanent, even with the concerns about at some point we're gonna talk about gas consumption again, now we're not, because alright, then, let me tell you why it's permanent. Uh So, First, it's what the consumer wants. They love the high seating position, they love the utility, and they love the panache that comes with the design. Step two, the fuel economy of these vehicles compared to ten years ago, has doubled. We have small SUVs that

are as more fuel efficient than a sitan. It's absolutely amazing. We have pickup trucks that get thirty miles to a gown on the highway. So, and then you combine the fact that gasoline prices are very reasonable of adjusted for inflation, just under three dollars a gallon, and America is producing its own petroleum. Again, We're up to ten million barrels a day with fracking and it's sustainable. So what's going to happen to get the American consumer out of this rucket?

Would take five six seven dollars a gallon gasoline to to to push them back into Sedan's. I don't see it happening. So that means um overall, Yeah, uh, it's leveled off, but at a very nice place. All right, Craig, just real quick here, I'd love to get your perspective. Do you ever see a world two people you talk to see a world in which the ride sharing industry overtakes the car ownership industry. Is that going to upset the model here? I think it's really hard to see

that in most of America. And I think one of the things that Mike I've heard Mike talk about is is that being really a model that is applicable and useful in the cities, but so much of America, so much so much of the American car buyers are the folks in rural areas where Lift and Uber and the like just have not scaled and are going to have some real trouble, uh, scaling in any meaningful way. And we've seen these companies make a lot of noise and cities and and maybe pick off some buyers on the

margin here and there. But uh, you know, we're quite a few years into these companies being around and we're still selling you know, sixteen seven million. Look at who they who They're disrupting taxis, buses, subways, rental cars. So so the shared market is being disrupted by a shared business, yes, and it really hasn't touched the personally used market. Unfortunately, we have to leave it there. Thank you so much for being here. Congratulations on an amazing tenure, uh rising

from being a mechanic to the CEO. Mike Jackson, executive chairman of Automation, also chair at the Atlanta Fed. He joins us here in the Leventhreeo Studios. Also our thanks to Craig Trudell, us Auto's team leader for Bloomberg News in New York. I want to talk about housing. There's been a lot of questioning about how strong the US housing market really is. An underlying that angst really is the affordability question. Can Americans afford to own homes? Can

they afford the American dream? And joining us down to talk about that is Danielle Hale, chief economist for Realtor dot com. Danielle, thank you so much for being here. Definitely some conflicting data this morning. We saw that US housing starts rose more than forecasts, but permits slumped, suggesting perhaps a little bit of a struggle there. I'm wondering how much of this story is the ability for people

to actually buy homes right now? Yeah, I think that's a great point, lisas so, housing starts were up, but if you dig down and look at the data, single family starts eat out just a really minor gain. Most of the game came from a huge jump and multi family starts. And when we think about the owner occupied housing market, it's single family starts that lead to homes that people can buy. Most of the multi family construction

that is built is built for rent UM. So this really isn't helping people who are in the market to buy a home. It's probably good news for renters. They might see some relief and rent increases on the horizon, but not so much on the on the home ownership side. So can you talk a little bit about affordability because a news story study that you guys put out showed the only forty one of the US can actually afford

to own a home. How does that compare to the past. Yeah, So what we're looking at in that study is the media income family. So the media income family in counties where forty one percent of the nation's population lives can't afford to buy the median home listing price UM, and so things are less affordable now than they have been from most of the last seven or eight years UM. But we're sort of back in line with what a

longer term picture of affordability is. So in the last seven or eight years, mortgage rs have been incredibly low. After the housing crisis, prices were low and have since recovered um And so that created a huge opportunity for people to get into the housing market. UM and we're starting to see that that window is closing, at least as far as you know, great opportunities. That doesn't mean there aren't opportunities. Things are just less affordable now than

they have been in the recent past. I'm wondering what this does with respect to the dynamic and the rental market. We've seen a lot of money being raised for funds managed by the likes of ox if or Blackstone to buy up rental properties. How much does this sort of create a puzzle or present possibly a challenge to the costs that people end up paying if people are forced into renting more than owning. In other words, can you just give a sense of what the benefits are on

both sides here? Yeah, So if you're renting, you have flexibility, um in the sense that if you need to move, you can do so relatively easily. You're not responsible for any of the property maintenance, and you don't take any of the risks of anything breaking that falls on your landlord. So it's great for younger households, and in fact we see younger households are much more likely to rent than

to own. But for older households that are more established, maybe you have kids in the picture, um it's nice to have that stability. Um So, you don't get the flexibility, but you get the benefit of stability. You get to be in the same place, you get to call the shots and make decisions, so you're not facing the question of what is going to happen to my rent every year. You get to pay a fixed monthly payment if you've taken out a thirty year fixed rate mortgage, which is

by far the most common type of mortgage. Um So there are a lot of benefits. And when you're a homeowner, you're paying down your mortgage every month, and so you're building up equity through that forced savings plan of making payments on your mortgage. So it's a great way for homeowners to accumulate wealth. And in fact, if you look at the data, homeowners tend to have thirty to forty times greater net worth and renters. A large part of that is because of the value they've built up in

their homes. What do you think of the theory that's been postulated that when the baby boomers get old, retired downsize their homes, there's going to be a flood of houses that are put up from market valuations are going to crash. Have you heard this theory? I have heard this theory, um quite a bit. I think that, um, you know, the baby boomers own a lot of real estate right now, and they're such a huge generation that

they have big impacts on the macro economy. I think that, um, you know, baby boomers are living longer, They're healthier than previous generations, so they're staying in their homes longer. I don't think we're going to see a sudden exodus out of their homes because I don't think they're moving to assisted living type facilities as much as previous generations, and they're certainly not moving as early to those types of facilities. So I think they're going to stay in their homes

for a little longer. And I think that's going to be good because it's going to spread out that wave, so it's not going to be like a huge surge. I think it will be a gradual increase and that will help the market better adjust to absorb it, and especially as millennials age into those years where they're forming households having kids, I think that will help absorb some of those homes that are out in the suburb. Danielle, just twenty seconds here. Where do you think we are

in the housing cycle right now? I think prices are high. I think sales are struggling because affordability is challenging. But for households who are looking again, and I still think there's opportunity in the housing market. Thank you so much for being with us, Danielle Hale, chief economists for Realtor dot com. And definitely, uh, quite a staggering number that only the US can actually afford to own a home.

But great perspective there that this is not uncommon historically, that this sort of is uh the historic average in terms of what people could afford. Definitely also telling though, as a number of big institutional firms plow into the rental ownership business try and capitalize on this trend. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm

on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one before the podcast, you can always catch us worldwide on Bloomberg Radio