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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Master's in

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Speaker 1: Business with Barry Ritholts on Bloomberg Radio on the.

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Speaker 2: Latest Masters in Business podcast. My conversation with Ed Perks.

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Speaker 2: He has been with Franklin Templeton since nineteen ninety two.

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Speaker 2: He has all of these various titles. He's not only

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Speaker 2: PM of their flagship Franklin Income Funds, but he's CEO

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Speaker 2: of Franklin Income Investors, president of their Advisors Group, member

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Speaker 2: of the Executive Committee. Not many people have been with

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Speaker 2: the same firm their entire career right out of college.

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Speaker 2: Ed Perks is one of them. Few people more knowledgeable

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Speaker 2: about fixed income and non bond yield. I thought this

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Speaker 2: conversation was fascinating, and I think you will also with

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Speaker 2: no further ado, My conversation with Franklin Templeton's.

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Speaker 3: At Perks At Perks, Welcome to Bloomberg. Thanks Barry, it's

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Speaker 3: great to be with you. Well that's really quite an

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Speaker 3: impressive CV.

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Speaker 2: Before we get into the various assets you managed, let's

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Speaker 2: start with your background economics and political science BA from Yale.

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Speaker 2: That doesn't sound very much like a fixed income manager.

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Speaker 2: What was the original career plan?

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Speaker 4: Yeah, it certainly wasn't finance, And you know, at Yale,

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Speaker 4: I really kind of, you know, certainly had had a

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Speaker 4: broadcross section of studies. You know, like many of my classmates,

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Speaker 4: I think if it wasn't med school, it was either

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Speaker 4: law school or going into government. I think that's kind

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Speaker 4: of some of what I was thinking during school. Really

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Speaker 4: didn't didn't transition to trying to pursue a career in

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Speaker 4: finance until actually after I graduated, and at that time

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Speaker 4: I moved out west. I wanted to experience a different

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Speaker 4: part of the country, and particularly in the early nineteen nineties,

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Speaker 4: the San Francisco.

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Speaker 3: Bay area had a pretty robust.

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Speaker 4: Financial services community, and so I headed out after graduation

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Speaker 4: without a job and was able to land at Franklin.

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Speaker 2: Plus, you're done at one o'clock in the afternoon, that's

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Speaker 2: the you do start a bit early.

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Speaker 3: We started five thirty.

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Speaker 2: It's very very five in the I remember walking into

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Speaker 2: an office in San Francisco and at eight forty five

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Speaker 2: there are pizza boxes around, and it's sort of, oh,

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Speaker 2: that's right, we're on New York Wall Street time because

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Speaker 2: the market is live. So let's talk a little bit

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Speaker 2: about the nineteen nineties, you joined Franklin Templeton.

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Speaker 3: Is this your first gig out of school.

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Speaker 2: In nineteen ninety two. You've been at Franklin Templeton your

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Speaker 2: entire career.

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Speaker 3: Is that right? Yes, it is. That is pretty rare

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Speaker 3: these days.

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Speaker 2: Tell us about what attracted you to Franklin Templeton in

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Speaker 2: the beginning and what's kept you there for geez, coming

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Speaker 2: up on forty years, is that right?

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Speaker 3: Yeah?

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Speaker 4: Well, when I loaded the car up on Long Island,

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Speaker 4: I drove a small Misbecie Mirage hatchback across country. No

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Speaker 4: satellite radio, right, no air conditioning, no cell phones, so

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Speaker 4: it was a different time. But got out to California

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Speaker 4: really had the had the thought that I might experience

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Speaker 4: the West Coast for a year and a half or

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Speaker 4: two years and and make my way back to New

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Speaker 4: York and and.

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Speaker 3: Get get the real job, so to speak, you know.

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Speaker 4: And I was really fortunate to land at at Franklin

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Speaker 4: at a time of just tremendous growth, not just in

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Speaker 4: the industry but for our firm overall. I actually joined

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Speaker 4: the original Franklin Fonds prior to the Tilton merger. Yeah wow,

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Speaker 4: So that, yeah, that certainly dates me and makes me,

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Speaker 4: I guess a little og so, you know, I think

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Speaker 4: what was really interesting? And I landed at first and

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Speaker 4: took a role in marketing research. I knew very little

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Speaker 4: about the industry structure and I wanted to learn and

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Speaker 4: it gave me a great cross section of different investment strategies.

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Speaker 4: I had taken, you know, a class at Yale Investment

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Speaker 4: Analysis howt by you know, pretty legendary endowment manager David Swinson,

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Speaker 4: of course, And I think at the time I maybe

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Speaker 4: hoped that it was a bit more of a you know,

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Speaker 4: a typical stocks for Jock's kind of class, and in

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Speaker 4: fact it was not. But that did plant a little

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Speaker 4: bit of the seed. And and you know, but I

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Speaker 4: knew I had work to do to kind of prepare

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Speaker 4: myself for a role ultimately in pursuing research. And after

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Speaker 4: about a year and a half and taking one of

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Speaker 4: the CFA exams, I was able to get that junior

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Speaker 4: role as a research analyst in the Franklin Equity team.

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Speaker 2: Nineteen nineties, San Francisco. The tech boom was just ramping

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Speaker 2: up late eighties, early nineties. What was that experience like

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Speaker 2: that to be the Roaring nineties had to be quite

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Speaker 2: an experience in San Francisco.

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Speaker 4: Yeah, I'd say it really kind of kicked in a

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Speaker 4: gear more in the ninety six seven time period, and

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Speaker 4: then certainly the IR Yes, and that was premature, but

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Speaker 4: there was still plenty of time to go in it.

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Speaker 4: But it was a very exciting time to be out there,

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Speaker 4: not just in the tech community, but thinking about some

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Speaker 4: of the regional investment banks, Montgomery Securities and Hamburton Quist

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Speaker 4: and Stevens. You know, so you had a lot happening.

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Speaker 4: The The economy as a whole, i'd say at that

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Speaker 4: time was far more diversified than it is maybe today.

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Speaker 4: Obviously technology is such a dominant player within the Northern California.

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Speaker 2: Yeah, it's not that anything else got smaller. It's just

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Speaker 2: that tech ballooned up so large and it dominates everything. Although,

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Speaker 2: to be fair, I think finance has it hasn't grown

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Speaker 2: as fast as tech, but it certainly expanded lock you know,

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Speaker 2: fairly lockstep with technology. What's fascinating about your time your

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Speaker 2: early days at frank On Templeton. You did credit, you

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Speaker 2: did convertibles, you did equities. How important was that sort

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Speaker 2: of cross asset experience to eventually becoming more of a specialist.

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Speaker 4: Yeah, I think it was a key component of it.

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Speaker 4: I really was drawn to early days. I was drawn

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Speaker 4: to the different type of analysis that you would perform

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Speaker 4: based upon the kind of company you were following, our

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Speaker 4: industry you were following, and we did have a broad

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Speaker 4: cross section of strategies managed at Franklin, So as an

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Speaker 4: analyst following companies, you kind of always had something to

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Speaker 4: pitch a given portfolio manager on and that was something

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Speaker 4: that really attracted me. So whenever we had some movement

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Speaker 4: in the group or growth adding resources in a certain

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Speaker 4: area that was interesting, I kind of was inclined to

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Speaker 4: put my hand up and that led to a lot

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Speaker 4: of the progression of the career, ultimately moving out of

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Speaker 4: the analyst role in nineteen ninety seven and taking on

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Speaker 4: the duties of portfolio manager for that dedicated Franklin Convertible

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Speaker 4: Security spund.

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Speaker 2: So over all these different experiences and over time, how

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Speaker 2: does that lead to the evolution of your philosophy as

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Speaker 2: an investor? What beliefs did its strengthen and what beliefs

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Speaker 2: did you learn to Yeah, this just isn't generating anything

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Speaker 2: that's worthwhile anymore.

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Speaker 4: Well, I think the first thing was really kind of

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Speaker 4: understanding who you are as an investor. And I'm a

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Speaker 4: pretty firm believer in this that over time I came

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Speaker 4: to understand that I like a certain type of investing.

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Speaker 4: I like buying things that trade a reasonable valuations that

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Speaker 4: might not have an immediate catalyst, but something that you

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Speaker 4: can look out over a longer period of time. By

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Speaker 4: having that longer term investment horizon, income naturally became something

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Speaker 4: you'd focus on in terms of just thinking about it

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Speaker 4: from the standpoint of getting paid to wait while your

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Speaker 4: investment kind of performs the way you think it has

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Speaker 4: the potential to. So that's something that certainly started to

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Speaker 4: resonate at the early part of my career, but I

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Speaker 4: would say actually getting involved in convertible securities was a

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Speaker 4: pretty significant defining moment for me in that you can

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Speaker 4: pursue investing in convertibles, which are hybrids, which have fixed

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Speaker 4: income characteristics and have an equity tie as well, and

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Speaker 4: seek out investments that have the potential for positive asymmetry,

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Speaker 4: so securities where with a given time horizon and a

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Speaker 4: certain move in the underlying common stock, you'll do better

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Speaker 4: on the upside than you will get hurt on the downside,

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Speaker 4: and it was just something that really appealed to me,

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Speaker 4: and I think is a core component of what we've

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Speaker 4: done historically and tried to do in our multiset income strategies.

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Speaker 3: Let me throw something out to you.

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Speaker 2: I have noticed, as both a trader and an investor

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Speaker 2: that the guys who started in fixed income seem to

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Speaker 2: have a greater appreciation for risk management and for thinking

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Speaker 2: about asymmetrical trades where your downside is x and your

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Speaker 2: upside is three X or tan x or whatever. What

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Speaker 2: is it about fixed income analysts and investors that makes

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Speaker 2: them so hyper focused on risk management?

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Speaker 4: Yeah, it's fundamentally you're just doing a different, different type

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Speaker 4: of analysis. And I mean, one of the things that

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Speaker 4: we found kind of most fascinating over the years is

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Speaker 4: given we have an internal team of equity analysts and

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Speaker 4: an internal team of credit analysts, that opportunity when you're

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Speaker 4: meeting with company management and you'll sit down with both analysts,

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Speaker 4: and companies typically come to investors thinking they're on an

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Speaker 4: equity road show or a fixed income road show, right,

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Speaker 4: and when you sit down and now you want to

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Speaker 4: talk about it from both perspectives, that's some of the

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Speaker 4: most interesting meetings we've had over the years with companies,

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Speaker 4: they in fact have kind of different stories for those

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Speaker 4: different investor groups. So I think it gives you that

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Speaker 4: broader perspective of what the capital allocation decision making process

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Speaker 4: looks like at a given company. And ultimately what we're

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Speaker 4: doing is trying to figure out what money they will have,

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Speaker 4: i e. What are margins, how are profits growing, and

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Speaker 4: what they'll do with that capital.

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Speaker 2: So in your present roles, you have the latitude to

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Speaker 2: kind of go anywhere either in the cab structure or

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Speaker 2: the allocation table or geographically.

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Speaker 3: How does that affect how you.

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Speaker 2: Think about what's interesting, what's attractive, Like it's almost overwhelming

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Speaker 2: that sort of freedom to pretty much consider almost every

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Speaker 2: asset class.

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Speaker 4: Yeah, I would say that's actually kind of our ideal situation,

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Speaker 4: and we are in that today. I think there was

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Speaker 4: a lot of a long period of time post financial

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Speaker 4: crisis two thousand and nine where almost the intent of

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Speaker 4: the policy was to eliminate large sectors and the fixed

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Speaker 4: income markets from being attractive to.

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Speaker 3: Invest teams, right exactly.

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Speaker 4: So you know, I really kind of viewed today and

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Speaker 4: you know, the bond market being back was announced pretty

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Speaker 4: loudly in twenty twenty two. So you know today the

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Speaker 4: fact that we can look across you know, the swath

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Speaker 4: of fixed income markets and find you know, interesting areas.

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Speaker 3: You know, it may be more income focused, i e.

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Speaker 4: If we're not expecting a significant downdraft and interest rates,

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Speaker 4: the total return potential from fixed income might be more muted,

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Speaker 4: but they can play a really interesting role in generating

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Speaker 4: that kind of stable core total part of total return

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Speaker 4: that we expect income to be.

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Speaker 2: We're going to talk a lot about fixed income coming up,

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Speaker 2: but your CIO of Income Investors, what's the biggest macro

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Speaker 2: variable that the CIO of Franklin Templeton Income Investors looks

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Speaker 2: at every morning?

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Speaker 3: Yeah.

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Speaker 4: I mean, we really think there's kind of two components

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Speaker 4: to what we need to do, and you know one

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Speaker 4: I would put in this more kind of where we

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Speaker 4: can be proactive.

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Speaker 3: It's the.

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Speaker 4: Extent to which we think there's risk on the equity

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Speaker 4: side of markets, credit risk in markets or macro or

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Speaker 4: interest rate risk. Those are the three kind of big

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Speaker 4: risk components that we actively try to think about. I

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Speaker 4: would say that sets our kind of compass for how

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Speaker 4: we want to allocate the assets and even though over

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Speaker 4: long market cycles.

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Speaker 3: We may be pretty equally split.

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Speaker 4: Between fixed income and equity assets in our strategy at times,

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Speaker 4: even in the last five years, that's been seventy five

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Speaker 4: twenty five one way and then flipped the other way.

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Speaker 4: So there is a tremendous amount of latitude. And then,

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Speaker 4: you know, I think, on a day, more daily kind

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Speaker 4: of basis, certainly something that we're experiencing in pretty good

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Speaker 4: dose to start the year is those more reactive components

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Speaker 4: of risk. And you know, we do think right now

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Speaker 4: policy matters a lot, and it might be fiscal policy,

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Speaker 4: monetary policygulatory policy, but we're reminded almost on a daily

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Speaker 4: basis now that there's a lot of other factors foreign policy,

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Speaker 4: geopolitical risk that certainly influenced markets. It doesn't mean we're

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Speaker 4: going to make wholesale changes to the portfolio, but being

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Speaker 4: able to engage and get our investment team focused on

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Speaker 4: where opportunities might be is a big part of the

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Speaker 4: day to day role.

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Speaker 2: So let me ask that question. We're waiting for some

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Speaker 2: major Supreme Court decisions in a whole variety of areas.

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Speaker 2: There's the ongoing battle between the White House and the

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Speaker 2: Federal reserve that that's been heating up lately. It's been

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Speaker 2: sort of simmering for really a year. It seems every

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Speaker 2: morning you wake up and there's some tweet or something

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Speaker 2: else that are roiling the markets. Weight we're going to

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Speaker 2: cap credit cards ten percent. Good luck getting a credit

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Speaker 2: card if that happened. How do you interact with all

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Speaker 2: this newsflow? Is it something you ignore? Is it noise

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Speaker 2: that you have to sift through, or are you constantly

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Speaker 2: hunting for what's really meaningful here that's not reflected in

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Speaker 2: prices already? What could potentially move markets? If this seems

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Speaker 2: to catch a little bit.

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Speaker 4: Of fire, Yeah, I think the desire would be to

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Speaker 4: tune out that noise, to largely ignore it. But the

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Speaker 4: reality and markets those examples that you've given drove some

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Speaker 4: pretty significant movements, even if just for a short period

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Speaker 4: of time. You know, I would use the major banks,

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Speaker 4: those that are more focused on issuing credit cards as

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Speaker 4: an example yesterday in stock price activity last week, maybe

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Speaker 4: some of the large defense contractors how they were impacted

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Speaker 4: by some of the announcements. Those are some pretty significant

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Speaker 4: swings that we do have to pay attention to and

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Speaker 4: do have to think about whether or not, there's the opportunity.

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Speaker 4: But I think if you can step back, think about

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Speaker 4: it a little bit more rationally. Clearly, we want to

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Speaker 4: engage and get the insights from our dedicated analysts on

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Speaker 4: those specific situations. That's where some opportunities come in. And

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Speaker 4: you know, I think whether it be an isolated, very specific,

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Speaker 4: maybe more short term event, that's you know, one instance.

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Speaker 3: But if we go back a year, you know.

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Speaker 4: There was a two to three week period of tremendous

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Speaker 4: volatility around a policy shift that really gave investors an

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Speaker 4: opportunity around that tariff Day and Liberation Day.

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Speaker 2: Here, it was a week of you know, turmoil and

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Speaker 2: then on pause and off to the races we had,

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Speaker 2: you know, the most recent DOJ referral with a federal reserve.

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Speaker 2: I spoke to a buddy on a bond desk over

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Speaker 2: the weekend when this happened, and I love the attitude of, well,

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Speaker 2: look at the two year it doesn't care, So why

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Speaker 2: should I care?

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Speaker 3: Is that a little too glib?

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Speaker 2: How do you look at how the market, especially fixed

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Speaker 2: income market, reacts to the news flow. Is that really

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Speaker 2: the ultimate determiner of what's noise and what's signal?

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Speaker 4: Yeah, I think it's a good I might broaden it

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Speaker 4: from the two year to say, let's look at the curve, okay,

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Speaker 4: especially today, where I think there's probably more sensitivity around

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Speaker 4: where longer term interistrates are are sitting and potentially could

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Speaker 4: go you know, to me, anything that increases the confidence

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Speaker 4: the raises the uncertainty level around the economy, I think

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Speaker 4: are our challenges that you know, if we were to

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Speaker 4: see the long end respond unfavorably too, would be quite

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Speaker 4: problematic for markets.

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Speaker 2: Coming up, we continue our conversation with Ed Perks, chief

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Speaker 2: investment Officer of Franklin Income Investors and President of Franklin Advisors,

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Speaker 2: discussing the broader fixed income environment.

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Speaker 3: I'm Buried rid Holts.

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Speaker 2: You're listening to Masters in Business.

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Speaker 3: On Bloomberg Radio. I'm Barry Ridults.

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Speaker 2: You're listening to Masters and Business on Bloomberg Radio. Extra

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Speaker 2: special guests this week is Ed Perks. He is CIO

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Speaker 2: for Franklin Templeton Income Investors. He is also has been

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Speaker 2: PM of a number of their fixed income and hybrid funds,

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Speaker 2: including their flagship Franklin Income Fund, which he became lead PM.

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Speaker 2: I want to say two thousand and two, is that right?

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Speaker 4: Join the PMT in two thousand and two and lead

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Speaker 4: in two thousand and four.

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Speaker 2: Two thousand and four, all right, not two, that's twenty

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Speaker 2: plus years. So let's talk a little bit about what's

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Speaker 2: going on in fixed income. A lot of cross currents.

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Speaker 2: Here's what's happening with the Fed, Here's what's happening with

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Speaker 2: the dollar overseas has become more attractive. Let me just

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Speaker 2: right out of the box. Where are you seeing the

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Speaker 2: most compelling risk adjusted income opportunities today? High yield, investment grade,

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Speaker 2: diven inequities, And I know you could go anywhere.

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Speaker 3: So what do you like these days? Yeah?

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Speaker 4: You know, I would say in fixed income, we are

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Speaker 4: really pretty diversified across the range. And for us that

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Speaker 4: is US treasuries, it's agency mortgage backed securities, its investment

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Speaker 4: grade corporate bonds and high yeld corporate bonds. And you know,

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Speaker 4: we have different factors there, you know, one we do

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Speaker 4: think the carrier, the income component of fixed income is

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Speaker 4: quite attractive again today, and like I said before, it's

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Speaker 4: been a while since you know that was the case,

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Speaker 4: or there was a long period of time where that

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Speaker 4: was certainly not not a function, not a benefit that

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Speaker 4: investors in fixed income had spreads on the corporate side,

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Speaker 4: do you know, concern us a little bit. But at

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Speaker 4: the same time, you know, we have seen extended periods

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Speaker 4: of time historically where spits spreads have stayed on the

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Speaker 4: tighter side near historical lows. So you know, our view

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Speaker 4: is that you want to be diversified, look a little

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Speaker 4: bit more at idiosyncratic risks. So sometimes in our in

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Speaker 4: our strategy, we do think the biggest lever that we

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Speaker 4: have moving from one asset class to another is the

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Speaker 4: most appropriate. We certainly had that in twenty twenty one,

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Speaker 4: in twenty twenty three, today we think that lever is

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Speaker 4: a little less important and it's a little bit more

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Speaker 4: about relative value between sectors and or security selection idiosyncratic risks.

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Speaker 4: So I think in the past year, moving out of

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Speaker 4: some of the significant overweight that we had in investment

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Speaker 4: grade corporate debt, for example, in favor of agency mortgages

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Speaker 4: because spreads had really widened out with something that worked

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Speaker 4: out well for us.

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Speaker 3: In twenty twenty five.

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Speaker 2: I noticed you didn't mention tips treasury inflation protected securities.

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Speaker 2: Is that something that at the current level of inflation

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Speaker 2: and the current yield there is that attractive.

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Speaker 4: Yeah, it's not something that we're focused on today. I

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Speaker 4: think to the extent that we see inflation continue, you know,

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Speaker 4: to come down and settle in at a lower level,

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Speaker 4: that tips may become something that we want in the portfolio,

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Speaker 4: to the extent that then inflation could have surprised to

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Speaker 4: the upside.

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Speaker 2: And let's talk a little bit about those corporates you mentioned.

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Speaker 2: Are we getting enough spread between investment grade and high

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Speaker 2: yield corporates to make the juice worth the squeeze or

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Speaker 2: because for a long time there's hardly any daylight between

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Speaker 2: the yield and both.

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Speaker 3: How do you look at that.

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Speaker 2: Are corporates cheap or expensive high investment grade relative to

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Speaker 2: high yield?

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Speaker 4: Yeah, we do think moving up into the higher credit

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Speaker 4: quality components of high yield is probably one of the

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Speaker 4: more attractive areas. You know, we also like to so

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Speaker 4: if you're looking at triple B double B spreads, we

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Speaker 4: want to be in the higher quality credits to the

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Speaker 4: extent that we're owning a broader section of high yield,

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Speaker 4: which we do in our strategy.

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Speaker 3: It's emphasis and more on the latter security selection.

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Speaker 4: What is an individual company doing to be able to

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Speaker 4: refance the debt to turn out their maturities, or ultimately

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Speaker 4: to improve the overall credit quality. We do think grating

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Speaker 4: agencies lag by a significant margin, and if you can

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Speaker 4: get ahead of that and use your fundamental analysis, that

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Speaker 4: that's an area within the fixed income markets we want

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Speaker 4: to be focused.

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Speaker 2: I'm trying to remember who I'm stealing this line from,

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Speaker 2: but it's definitely not mine. Which is, there's so much

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Speaker 2: variation in the B minus space that some of it

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Speaker 2: is junk and some of it is ig and maybe

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Speaker 2: some of it's in between, but the variance is enormous.

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Speaker 3: Fair statement, Yeah, I think that is.

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Speaker 4: And you know, certainly there are investors that play only

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Speaker 4: in certain parts, and when you're flirting with that lower

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Speaker 4: credit quality component B minus into triple C, that starts

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Speaker 4: to change the dynamic of who the investor base potentially is.

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Speaker 3: So you've been doing this for a long time.

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Speaker 2: You've lived through the financial crisis, zerup, zero interest rate policy,

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Speaker 2: quantitative easing, the most recent inflation shock and tightening cycle.

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Speaker 2: For someone who has your authority to go anywhere, what

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Speaker 2: of those types of environment and so the most challenging

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Speaker 2: to manage an income portfolio through.

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Speaker 4: Yeah, I mean, I think certainly the periods of extreme

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Speaker 4: volatility are going to be challenging for any strategy, and

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Speaker 4: and in my career the ones that i'll you know,

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Speaker 4: go back to certainly when managing the convertible fund around

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Speaker 4: the dot com crash and then in our income strategies

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Speaker 4: both financial crisis. So you know, yeah, market's bottomed in

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Speaker 4: March oh nine, but September of eight was pretty difficult

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Speaker 4: for any investor, you know. To me, I think what's

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Speaker 4: really defined our strategies and maybe become a little bit

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Speaker 4: of a you know, the focal point of our approach

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Speaker 4: is is to continually look forward. I mean, I think

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Speaker 4: the the number of investors, even if we were to

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Speaker 4: bring this more into the current you know time we

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Speaker 4: spoke less than a year ago and twer volatility was

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Speaker 4: impacting markets. I think a lot of investors have the

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Speaker 4: tendency to, you know, to sit on their hands a

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Speaker 4: bit when there's this kind of volatility playing out in markets.

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Speaker 4: And maybe even even the worst case would be going

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Speaker 4: to the sidelines, which we know a lot of investors

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Speaker 4: did in September of eight or March of nine, and well.

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Speaker 3: The first week of April of last year exactly.

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Speaker 4: And that's where I think, because we have such a

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Speaker 4: flexible mandate, our tension turns more to how can we

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Speaker 4: optimize the positioning.

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Speaker 3: Of the portfolio.

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Speaker 4: We always have assets that are benefiting in some way,

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Speaker 4: have some liquidity profile to them that lets us focus

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Speaker 4: on being playing offense a little bit more during those

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Speaker 4: periods of time, and I think that's something that has

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Speaker 4: has always enabled us to kind of recharge the portfolio.

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Speaker 4: Pretty firm believer in the price you pay matters concept,

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Speaker 4: whether it's an income investment or something that's designed to

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Speaker 4: create more capital appreciation. Uh, And that's something that you know,

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Speaker 4: really has enabled us to kind of ultimately come out

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Speaker 4: of periods of volatility and deliver for our investors, you know,

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Speaker 4: even though there might have been some bumps along the way.

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Speaker 2: So twenty twenty two was the first year that saw

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Speaker 2: double digit losses in both stocks and bonds since forty

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Speaker 2: years earlier in nineteen eighty one, which I recall was

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Speaker 2: also a rate hiking environment, not quite as aggressive as

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Speaker 2: what we saw in twenty twenty two. I've noticed people

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Speaker 2: talking about anticipating that again and pretend preparing for it.

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Speaker 3: Is that a little overly cautious.

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Speaker 2: How often do we see stocks and bonds both down

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Speaker 2: that significantly in the same years.

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Speaker 3: Is that likely to happen anytime soon?

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Speaker 4: Well, I think the backdrop was really set for that dynamic.

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Speaker 4: And what I mean by that is where rates had

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Speaker 4: declined to you didn't have the carried offset negative returns

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Speaker 4: and fixed income, and the resetting of where rates should

442
00:24:53,400 --> 00:24:59,399
Speaker 4: have been provided that the fuel to drive those kind

443
00:24:59,440 --> 00:25:01,639
Speaker 4: of negative to return. So we really think we're in

444
00:25:01,680 --> 00:25:05,959
Speaker 4: that certainly not in that position today. Never say, you know,

445
00:25:06,000 --> 00:25:09,439
Speaker 4: can we don't expect that that can never happen again,

446
00:25:09,640 --> 00:25:12,959
Speaker 4: but certainly not the backdrop that we're envisioning today. So

447
00:25:13,119 --> 00:25:16,639
Speaker 4: just the rationale or why our bonds? Can bonds be

448
00:25:16,680 --> 00:25:19,679
Speaker 4: a diversifier and a multi asset portfolio? You know, I

449
00:25:19,680 --> 00:25:21,280
Speaker 4: think we would have argued, and if you look at

450
00:25:21,280 --> 00:25:25,320
Speaker 4: our asset allocation in twenty twenty one, we did not

451
00:25:25,440 --> 00:25:28,560
Speaker 4: believe so. And they certainly did not offer attractive income

452
00:25:28,600 --> 00:25:29,480
Speaker 4: for investors.

453
00:25:30,040 --> 00:25:32,679
Speaker 2: And that was good for twenty Prior to twenty years,

454
00:25:32,720 --> 00:25:36,399
Speaker 2: they were not producing a whole lot of income. After

455
00:25:36,440 --> 00:25:41,560
Speaker 2: twenty twenty two, yields were look, money markets were over

456
00:25:41,600 --> 00:25:44,800
Speaker 2: five percent for a while. Now we're in a rate

457
00:25:44,840 --> 00:25:48,560
Speaker 2: cutting cycle. How does that affect how you look at

458
00:25:49,680 --> 00:25:53,320
Speaker 2: fixed income products? Are you looking to extend duration? Are

459
00:25:53,359 --> 00:25:57,840
Speaker 2: you looking to extend credit quality? Is there now reinvestment

460
00:25:57,920 --> 00:26:00,600
Speaker 2: risk if you're too short thinking about this.

461
00:26:00,880 --> 00:26:03,959
Speaker 4: Yeah, we've made such a significant move into fixed income

462
00:26:04,280 --> 00:26:09,199
Speaker 4: in twenty twenty two and twenty twenty three that you know,

463
00:26:09,200 --> 00:26:11,520
Speaker 4: we do have that now. In the corporate space in particular,

464
00:26:11,600 --> 00:26:15,200
Speaker 4: we have companies that are engaging the market refinancing, so

465
00:26:15,320 --> 00:26:17,320
Speaker 4: some of the real prized kind of investments we were

466
00:26:17,359 --> 00:26:19,320
Speaker 4: to make at the time, you know, we are now

467
00:26:19,359 --> 00:26:22,320
Speaker 4: seeing some cash coming back into the portfolio. But the

468
00:26:22,440 --> 00:26:24,879
Speaker 4: way we treat that is that just because a dollar

469
00:26:24,920 --> 00:26:27,320
Speaker 4: comes out maybe a high yield bond is called away

470
00:26:27,440 --> 00:26:30,479
Speaker 4: or matures, which they do in fact do at times,

471
00:26:31,400 --> 00:26:33,280
Speaker 4: it doesn't mean that dollar goes back into the high

472
00:26:33,320 --> 00:26:35,600
Speaker 4: yield bond market. For us, it's always going to be

473
00:26:35,600 --> 00:26:38,879
Speaker 4: that next most attractive place that we're looking today, we

474
00:26:38,960 --> 00:26:43,640
Speaker 4: might be looking you know, more specifically in structured equity

475
00:26:43,720 --> 00:26:47,480
Speaker 4: or in convertible securities, where you know, we think outside

476
00:26:47,520 --> 00:26:51,320
Speaker 4: of the very large megacap tech companies that have driven

477
00:26:51,359 --> 00:26:53,160
Speaker 4: this market since twenty twenty three.

478
00:26:53,040 --> 00:26:54,920
Speaker 3: That there's pretty reasonable valuation.

479
00:26:55,160 --> 00:26:58,520
Speaker 4: So there's a lot of companies, whether it's utilities or industrials,

480
00:26:59,000 --> 00:27:02,679
Speaker 4: that I think have a pretty interesting profile for the

481
00:27:02,680 --> 00:27:05,520
Speaker 4: rest of the decade. So if we can pursue investments

482
00:27:05,520 --> 00:27:08,000
Speaker 4: in their common stock, maybe there's a two to three

483
00:27:08,000 --> 00:27:10,800
Speaker 4: percent dividend yield, but if we can access a convertible,

484
00:27:11,160 --> 00:27:13,199
Speaker 4: we can blend that yield up to something that's more

485
00:27:13,200 --> 00:27:16,520
Speaker 4: attractive for a strategy and yet still retain a pretty

486
00:27:16,520 --> 00:27:17,320
Speaker 4: interesting profile.

487
00:27:17,320 --> 00:27:18,159
Speaker 3: On the upside.

488
00:27:18,520 --> 00:27:21,760
Speaker 2: My assumption is if something is being called away, it's

489
00:27:21,840 --> 00:27:25,480
Speaker 2: that it was too generous and now they're refinancing at

490
00:27:25,480 --> 00:27:28,280
Speaker 2: a more attractive rate. Let's talk a little bit about

491
00:27:28,320 --> 00:27:34,040
Speaker 2: the Franklin Income Fund. You're only the third lead manager

492
00:27:34,320 --> 00:27:38,680
Speaker 2: of this flagship fund. You followed Charles Johnson, who was

493
00:27:38,760 --> 00:27:43,760
Speaker 2: fairly legendary in the fixed income world, and tell us

494
00:27:43,800 --> 00:27:46,880
Speaker 2: a little bit about what it was like taking over

495
00:27:46,920 --> 00:27:48,440
Speaker 2: as lead manager of that fund.

496
00:27:49,040 --> 00:27:51,720
Speaker 4: Well, firstly, me mentioned I had a chance to sit

497
00:27:51,760 --> 00:27:54,919
Speaker 4: down with Charlie last month, something I try to do

498
00:27:55,000 --> 00:27:58,560
Speaker 4: on a regular basis as I can, and to still

499
00:27:58,600 --> 00:28:02,679
Speaker 4: see and and meet with him and hear the stories

500
00:28:02,840 --> 00:28:05,600
Speaker 4: of some of the history is something that I really

501
00:28:06,119 --> 00:28:08,119
Speaker 4: really cherish and value doing.

502
00:28:09,440 --> 00:28:11,280
Speaker 3: You know, I think from the standpoint of.

503
00:28:13,400 --> 00:28:16,399
Speaker 4: The path that we've been on with Franklin Income, you know,

504
00:28:16,480 --> 00:28:19,280
Speaker 4: joining in two thousand and two was it was a

505
00:28:19,359 --> 00:28:22,800
Speaker 4: large strategy for Franklin at the time, it was, you know,

506
00:28:22,840 --> 00:28:25,919
Speaker 4: around eight billion in assets under management. I think what

507
00:28:26,080 --> 00:28:29,600
Speaker 4: really kind of maybe though defined the strategy was that

508
00:28:29,640 --> 00:28:34,040
Speaker 4: period coming out of the financial crisis and you know,

509
00:28:34,280 --> 00:28:37,359
Speaker 4: navigating our way and being able to engage the broad

510
00:28:37,359 --> 00:28:40,720
Speaker 4: cross section of markets and perform very well for five

511
00:28:40,800 --> 00:28:42,000
Speaker 4: year period really.

512
00:28:42,400 --> 00:28:43,280
Speaker 3: Helped establish this.

513
00:28:43,400 --> 00:28:46,520
Speaker 4: But at the same time, you know, we realized that

514
00:28:46,600 --> 00:28:50,960
Speaker 4: investors financial advisors do like a range of different strategies

515
00:28:51,040 --> 00:28:53,520
Speaker 4: or the ability to use different vehicles to deliver an

516
00:28:53,560 --> 00:28:58,080
Speaker 4: investment strategy, and that was something where in twenty and

517
00:28:58,120 --> 00:29:01,720
Speaker 4: twenty two we launched Franklin Income and SMA vehicle, and

518
00:29:01,760 --> 00:29:04,800
Speaker 4: in twenty twenty three we launched Franklin Income strategy in

519
00:29:04,840 --> 00:29:05,560
Speaker 4: an ETF.

520
00:29:05,800 --> 00:29:09,800
Speaker 3: So it's been and to see.

521
00:29:11,080 --> 00:29:15,200
Speaker 4: That strategy get adopted in different vehicles is something that

522
00:29:15,280 --> 00:29:19,600
Speaker 4: was a big part of taking this strategy that's been

523
00:29:19,600 --> 00:29:22,600
Speaker 4: so important for Franklin Templeton as a whole to a

524
00:29:22,600 --> 00:29:24,120
Speaker 4: different type of investor.

525
00:29:23,920 --> 00:29:26,280
Speaker 2: And for listeners who may not be familiar with the

526
00:29:26,320 --> 00:29:29,800
Speaker 2: Franklin Income Fund. A couple of things really struck me

527
00:29:29,880 --> 00:29:33,040
Speaker 2: about it. First, not too long ago, it's celebrated, it's

528
00:29:33,080 --> 00:29:36,440
Speaker 2: seventy fifth anniversary. Ain't a whole lot of funds that

529
00:29:36,480 --> 00:29:41,120
Speaker 2: have been running continuously for seventy five years since nineteen fifty.

530
00:29:41,640 --> 00:29:49,000
Speaker 2: And then secondly, and this amazes me, uninterrupted monthly dividends

531
00:29:49,080 --> 00:29:52,600
Speaker 2: dating back to the launch, which was I think nineteen

532
00:29:52,640 --> 00:29:53,800
Speaker 2: forty eight, Is that right?

533
00:29:54,400 --> 00:29:57,800
Speaker 3: That's unbelievable. It is a great it's really a great story.

534
00:29:57,800 --> 00:30:00,200
Speaker 4: It was part of the original custodian funds for frank

535
00:30:00,720 --> 00:30:05,040
Speaker 4: and the first four were you really the four asset

536
00:30:05,040 --> 00:30:08,120
Speaker 4: classes at the time, a bond fund, a stock fund,

537
00:30:08,400 --> 00:30:10,920
Speaker 4: a preferred fund, and a utility fund. And then the

538
00:30:10,920 --> 00:30:14,120
Speaker 4: final series of custodian funds was the Income Fund, which

539
00:30:14,480 --> 00:30:18,240
Speaker 4: was meant to look at those other four strategies for

540
00:30:18,520 --> 00:30:21,480
Speaker 4: asset classes and find the most attractive income investments.

541
00:30:21,520 --> 00:30:24,240
Speaker 2: So, sure, the four food groups, that's the core, and

542
00:30:25,040 --> 00:30:27,760
Speaker 2: you create a whole meal out of that. So you

543
00:30:27,840 --> 00:30:31,840
Speaker 2: mentioned agency mortgage backs, what else do you look at

544
00:30:32,320 --> 00:30:35,920
Speaker 2: that are either asset backed or clos or any exotic

545
00:30:36,600 --> 00:30:44,840
Speaker 2: other products that theoretically generate pretty good yield relative to

546
00:30:44,880 --> 00:30:46,400
Speaker 2: the risk the investor assumes.

547
00:30:47,080 --> 00:30:50,920
Speaker 4: Yeah, I mean, I think that agency mortgages tend to

548
00:30:50,960 --> 00:30:53,800
Speaker 4: be our core component within that part of the fixed

549
00:30:53,800 --> 00:30:58,000
Speaker 4: income markets. But we're always evaluating different opportunities asset backed

550
00:30:58,320 --> 00:31:02,360
Speaker 4: oriented investments, and you know, right now we're pretty light.

551
00:31:02,520 --> 00:31:04,520
Speaker 4: We do have a fair amount of corporate debt that

552
00:31:04,640 --> 00:31:05,560
Speaker 4: is secure debt.

553
00:31:05,920 --> 00:31:11,440
Speaker 2: So I recall coming out of the financial crisis, Double

554
00:31:11,520 --> 00:31:14,560
Speaker 2: Line as an example, had a ton of mortgage backs,

555
00:31:15,080 --> 00:31:20,280
Speaker 2: and it just seemed as everybody refinanced and refinanced their homes,

556
00:31:20,400 --> 00:31:24,000
Speaker 2: the available paper just disappeared. I'm doing this off the

557
00:31:24,080 --> 00:31:25,760
Speaker 2: top of my head, but it was something like ninety

558
00:31:25,760 --> 00:31:28,680
Speaker 2: percent mortgages when it started. I ended up at like

559
00:31:28,720 --> 00:31:32,520
Speaker 2: twenty five or thirty five percent mortgages. We've seen a

560
00:31:32,600 --> 00:31:39,680
Speaker 2: significant slowdown in home sales. Yield has been higher than

561
00:31:39,720 --> 00:31:42,760
Speaker 2: it's been for the past twenty years, so we haven't

562
00:31:42,840 --> 00:31:46,000
Speaker 2: seeing a lot of refinancing or a lot of new issuance.

563
00:31:46,600 --> 00:31:49,320
Speaker 3: Is there enough mortgage back paper out there? What's going

564
00:31:49,320 --> 00:31:50,120
Speaker 3: on in that space?

565
00:31:50,320 --> 00:31:54,240
Speaker 4: Yeah, And certainly it's been topical just the last week

566
00:31:54,360 --> 00:31:56,520
Speaker 4: or so with you know, the.

567
00:31:56,480 --> 00:31:59,400
Speaker 2: Fanny and Freddie he had two hundred billion a month

568
00:31:59,480 --> 00:32:00,800
Speaker 2: or some while number.

569
00:32:00,880 --> 00:32:03,480
Speaker 4: An additional two hundred billion, but even beyond that there

570
00:32:03,480 --> 00:32:05,160
Speaker 4: could be an extension. So, you know, we did see

571
00:32:05,160 --> 00:32:07,640
Speaker 4: the mortgage market react, right, We saw spreads kind of

572
00:32:07,680 --> 00:32:12,000
Speaker 4: come down, and you know, ultimately bringing longer term rates

573
00:32:12,040 --> 00:32:14,640
Speaker 4: down is going to be probably the biggest beneficiary in

574
00:32:14,720 --> 00:32:16,920
Speaker 4: terms of activity within the housing market.

575
00:32:17,000 --> 00:32:18,000
Speaker 3: But do we have to.

576
00:32:17,960 --> 00:32:20,520
Speaker 2: Get down to five percent mortgage rates to see this

577
00:32:20,640 --> 00:32:21,480
Speaker 2: really kick up?

578
00:32:21,600 --> 00:32:25,840
Speaker 3: Or where are we now? Six change? Sixteenth quarter? Yeah?

579
00:32:25,920 --> 00:32:28,040
Speaker 4: I mean I think certainly that needs to be the

580
00:32:28,040 --> 00:32:31,280
Speaker 4: direction of travel, what that that specific number needs to

581
00:32:31,320 --> 00:32:32,480
Speaker 4: be to get some activity.

582
00:32:32,480 --> 00:32:34,800
Speaker 3: Probably there's some other factors as well.

583
00:32:34,880 --> 00:32:37,920
Speaker 4: Certainly the overall healthy the economy and the labor market

584
00:32:37,960 --> 00:32:40,360
Speaker 4: are going to be a major major component of being

585
00:32:40,360 --> 00:32:42,840
Speaker 4: able to get some of that activity going in the

586
00:32:42,880 --> 00:32:43,480
Speaker 4: housing market.

587
00:32:43,800 --> 00:32:48,360
Speaker 3: How closely do you track macro economic news?

588
00:32:48,520 --> 00:32:52,640
Speaker 2: Like if I had to describe the labor market today,

589
00:32:53,080 --> 00:32:58,560
Speaker 2: I would say it's still solid, but not as strong

590
00:32:58,600 --> 00:33:01,600
Speaker 2: as it was a year ago or even six months ago.

591
00:33:02,040 --> 00:33:04,680
Speaker 2: Really since April we've seen it kind of soften up.

592
00:33:05,400 --> 00:33:09,000
Speaker 2: We're not seeing big layoffs, do you. I always feel

593
00:33:09,000 --> 00:33:12,920
Speaker 2: like a macro tourist when I visit that space, because

594
00:33:13,200 --> 00:33:17,000
Speaker 2: it's not my charge to predict labor markets. How do

595
00:33:17,040 --> 00:33:20,400
Speaker 2: you integrate looking at all these data points that seem,

596
00:33:20,960 --> 00:33:24,040
Speaker 2: as you said earlier, so noisy, so hard to find

597
00:33:24,080 --> 00:33:24,960
Speaker 2: the signal in there.

598
00:33:25,640 --> 00:33:28,440
Speaker 4: Yeah, there's something like the labor market clearly has taken

599
00:33:28,560 --> 00:33:30,080
Speaker 4: kind of a front seat.

600
00:33:30,160 --> 00:33:30,320
Speaker 3: Right.

601
00:33:30,400 --> 00:33:33,160
Speaker 4: We had the FED really focused on fighting inflation, and

602
00:33:33,880 --> 00:33:37,760
Speaker 4: then as we saw the labor market weekning ultimately and

603
00:33:37,960 --> 00:33:41,640
Speaker 4: encourage for the FED to begin a presumption of the

604
00:33:42,160 --> 00:33:44,720
Speaker 4: interest rate cuts. Now, you know, I think there's a

605
00:33:44,800 --> 00:33:47,520
Speaker 4: kind of a reluctance in the labor market on both sides. Right,

606
00:33:47,560 --> 00:33:50,360
Speaker 4: there's a reluctance maybe at the corporate level to hires,

607
00:33:50,360 --> 00:33:52,400
Speaker 4: a lot of uncertainty. Some of that was brought on

608
00:33:52,560 --> 00:33:56,600
Speaker 4: by the onset of tariffs and just the uncertainty around

609
00:33:56,640 --> 00:34:00,720
Speaker 4: where that was going to impact businesses. And then I

610
00:34:00,760 --> 00:34:03,600
Speaker 4: think you can't ignore AI in the role that that's happening.

611
00:34:03,760 --> 00:34:06,720
Speaker 4: So there's this reluctance maybe to hire in a reluctance

612
00:34:06,760 --> 00:34:08,839
Speaker 4: to fire. So we're stuck with a little bit more

613
00:34:08,880 --> 00:34:10,600
Speaker 4: stagnant component in the labor market.

614
00:34:11,120 --> 00:34:14,719
Speaker 2: Really really interesting coming up, we continue our conversation with

615
00:34:14,960 --> 00:34:20,640
Speaker 2: Ed Perks, CIO of Franklin Income Investors, talking about where

616
00:34:20,719 --> 00:34:25,640
Speaker 2: he sees value in various equity markets. I'm Barry Ridults.

617
00:34:25,680 --> 00:34:42,560
Speaker 2: You're listening to Masters in Business on Bloomberg Radio.

618
00:34:43,800 --> 00:34:44,840
Speaker 3: I'm Barry Ridults.

619
00:34:44,880 --> 00:34:48,200
Speaker 2: You're listening to Masters in Business on Bloomberg Radio. My

620
00:34:48,480 --> 00:34:52,320
Speaker 2: extra special guest today is Ed Perks. He's chief investment

621
00:34:52,360 --> 00:34:57,000
Speaker 2: officer at Franklin Templeton Income Investors as well as president

622
00:34:57,080 --> 00:34:58,319
Speaker 2: of Franklin Advisors.

623
00:34:58,760 --> 00:35:01,000
Speaker 3: He has managed several go.

624
00:35:00,880 --> 00:35:05,799
Speaker 2: Anywhere as well as income funds for Franklin Templeton, including

625
00:35:05,920 --> 00:35:11,439
Speaker 2: the flagship Franklin Income Fund, which can purchase pretty much

626
00:35:11,440 --> 00:35:13,800
Speaker 2: anything at once that generates income.

627
00:35:14,520 --> 00:35:15,960
Speaker 3: Le we were talking.

628
00:35:15,680 --> 00:35:20,879
Speaker 2: Earlier about the fixed income portion, Let's talk about the

629
00:35:20,960 --> 00:35:25,719
Speaker 2: equity portion. And I recall reading something you said as

630
00:35:25,760 --> 00:35:29,640
Speaker 2: we were coming out of the pandemic about the dominance

631
00:35:29,800 --> 00:35:35,080
Speaker 2: then of growth stocks over value. How has your views

632
00:35:35,440 --> 00:35:39,520
Speaker 2: changed over the past five years of other than twenty

633
00:35:39,560 --> 00:35:42,719
Speaker 2: twenty two double digit gains and equities.

634
00:35:43,719 --> 00:35:44,319
Speaker 3: Yeah, I think you.

635
00:35:44,320 --> 00:35:47,640
Speaker 4: Know, we've gone through this period since the pandemic with

636
00:35:47,680 --> 00:35:50,680
Speaker 4: different cycles within the equity markets, and certainly there was

637
00:35:50,719 --> 00:35:57,040
Speaker 4: a tilt immediately towards growth and value underperformed. I think

638
00:35:57,080 --> 00:35:59,719
Speaker 4: it's shifted a bit, certainly in twenty three and four,

639
00:36:00,320 --> 00:36:03,799
Speaker 4: a transitioned to more of a market caap dominance, and

640
00:36:03,840 --> 00:36:07,120
Speaker 4: that certainly has proceeded. I think since the beginning of

641
00:36:07,480 --> 00:36:10,000
Speaker 4: twenty twenty three, something like the S and P five.

642
00:36:09,880 --> 00:36:12,200
Speaker 3: Hundred market cap has nearly.

643
00:36:11,960 --> 00:36:14,120
Speaker 4: Double the performance of the S and P five hundred

644
00:36:14,120 --> 00:36:17,040
Speaker 4: equal weight index. So, you know, we do think there's

645
00:36:17,520 --> 00:36:20,399
Speaker 4: a lot of other things kind of under that initial layer.

646
00:36:20,440 --> 00:36:22,920
Speaker 4: If you pull it back and look at the broader

647
00:36:24,280 --> 00:36:27,240
Speaker 4: equity markets, that there's a lot of opportunity across industries

648
00:36:27,280 --> 00:36:32,520
Speaker 4: where companies are benefiting from the expansion in the economy,

649
00:36:32,520 --> 00:36:35,239
Speaker 4: that are benefiting from the secular dynamics that we see,

650
00:36:35,280 --> 00:36:39,040
Speaker 4: whether it be in manufacturing investment or technology investment.

651
00:36:39,840 --> 00:36:45,320
Speaker 2: Interesting, so we've also seen active equity management under fairly

652
00:36:45,760 --> 00:36:50,239
Speaker 2: intense competitive pressure really for a good couple of decades.

653
00:36:50,719 --> 00:36:54,600
Speaker 2: How does that change how you look at equity selection

654
00:36:55,200 --> 00:36:56,160
Speaker 2: or asset allocation.

655
00:36:57,440 --> 00:36:59,880
Speaker 4: Yeah, you know, I think you know, from a may

656
00:37:00,120 --> 00:37:05,760
Speaker 4: a bigger picture, you know, the move towards more passive exposures,

657
00:37:06,160 --> 00:37:09,640
Speaker 4: the flood of money into passive investments has maybe exacerbated

658
00:37:09,680 --> 00:37:15,400
Speaker 4: some of these dynamics around, particularly the dispersion between the

659
00:37:16,160 --> 00:37:20,440
Speaker 4: megacap stocks the market weighted indices and the average stock or.

660
00:37:20,360 --> 00:37:21,520
Speaker 3: The equal weighted indocy.

661
00:37:22,400 --> 00:37:24,120
Speaker 4: You know, I think for us it really becomes more

662
00:37:24,160 --> 00:37:28,200
Speaker 4: about you know, security selection. There's still plenty of liquidity

663
00:37:28,239 --> 00:37:30,680
Speaker 4: in those other stocks, and to the extent that we

664
00:37:30,719 --> 00:37:33,000
Speaker 4: can turn over rocks that maybe other investors are not

665
00:37:33,080 --> 00:37:35,719
Speaker 4: looking at that are not being influenced as much by

666
00:37:35,760 --> 00:37:39,760
Speaker 4: the magnitude of flows coming into passive indicies is something

667
00:37:39,800 --> 00:37:41,960
Speaker 4: that you know, is a big part of our overall allocation.

668
00:37:42,640 --> 00:37:43,440
Speaker 3: But I would really go.

669
00:37:43,480 --> 00:37:45,719
Speaker 4: Back to, you know, this kind of view that as

670
00:37:45,760 --> 00:37:50,879
Speaker 4: an income investor, we can look for opportunities where we're

671
00:37:50,920 --> 00:37:53,799
Speaker 4: not trying to identify the catalyst next quarter or two

672
00:37:53,840 --> 00:37:57,520
Speaker 4: quarters from now. We're looking at investment with favorable fundamentals

673
00:37:57,520 --> 00:38:00,680
Speaker 4: that we think over time can deliver for investors in

674
00:38:00,719 --> 00:38:04,399
Speaker 4: that income component once again kind of a significant part

675
00:38:04,400 --> 00:38:06,080
Speaker 4: of maybe the near term total return.

676
00:38:07,120 --> 00:38:11,799
Speaker 2: So let's talk about those different asset classes that you're

677
00:38:11,840 --> 00:38:15,200
Speaker 2: not looking for great quarter guys, you're looking for great

678
00:38:15,280 --> 00:38:22,560
Speaker 2: decade convertibles, equity, bonds, credit. Do you play in the

679
00:38:22,600 --> 00:38:25,920
Speaker 2: private space as well. How significant is that tell us

680
00:38:25,960 --> 00:38:29,399
Speaker 2: about all these different multi asset options you have, and

681
00:38:29,600 --> 00:38:33,720
Speaker 2: is there an overall core philosophy that sort of strings

682
00:38:33,719 --> 00:38:37,960
Speaker 2: all of these together, keeps them all in one philosophical bucket.

683
00:38:38,200 --> 00:38:40,719
Speaker 3: Yeah. I think one of the more interesting components, you.

684
00:38:40,680 --> 00:38:43,399
Speaker 4: Know, our of our strategy is is taking a little

685
00:38:43,400 --> 00:38:46,560
Speaker 4: bit more of a holistic approach for how we invest

686
00:38:46,600 --> 00:38:49,799
Speaker 4: in a company. I mentioned before, you know, sitting down

687
00:38:49,840 --> 00:38:52,319
Speaker 4: at times with company management teams when you're approaching it

688
00:38:52,320 --> 00:38:56,280
Speaker 4: from both in equity and fixed income analysis standpoint. Well,

689
00:38:56,400 --> 00:39:00,279
Speaker 4: looking across a capital structure, it's pretty common that you know,

690
00:39:00,520 --> 00:39:04,239
Speaker 4: between a third or forty percent of the portfolio will

691
00:39:04,280 --> 00:39:06,719
Speaker 4: be invested in companies where we own multiple parts of

692
00:39:06,719 --> 00:39:08,240
Speaker 4: a company's capitals.

693
00:39:07,800 --> 00:39:12,480
Speaker 2: Meaning their bonds, their equity, and their convers or some combination.

694
00:39:12,080 --> 00:39:16,120
Speaker 4: Which it's It is somewhat common in a multi asset

695
00:39:16,600 --> 00:39:20,560
Speaker 4: strategy to have kind of different components.

696
00:39:20,800 --> 00:39:22,640
Speaker 2: And if you like the company, if you've done the

697
00:39:22,680 --> 00:39:27,239
Speaker 2: research and its income not just capital appreciation, why not

698
00:39:27,360 --> 00:39:32,080
Speaker 2: own everything. Do the valuations fluctuate within the same company

699
00:39:32,120 --> 00:39:35,960
Speaker 2: from corporate to equity to convertible, Sometimes a part of

700
00:39:36,000 --> 00:39:38,000
Speaker 2: their cap structure is more appealing than others.

701
00:39:38,160 --> 00:39:40,880
Speaker 4: Absolutely, and that's something that we've really seen over the

702
00:39:40,960 --> 00:39:43,640
Speaker 4: last five years, certainly when longer term rates were a

703
00:39:43,640 --> 00:39:46,719
Speaker 4: lot lower, really across the board, there were companies where

704
00:39:46,760 --> 00:39:51,759
Speaker 4: we saw equities trading in mid teens multiples with three

705
00:39:51,760 --> 00:39:55,040
Speaker 4: percent dividend yields and the same benchmark longer term debt

706
00:39:55,040 --> 00:39:57,480
Speaker 4: from those companies yielding one and a half to two percent.

707
00:39:57,640 --> 00:39:59,160
Speaker 3: Didn't make any sense, right exactly?

708
00:39:59,239 --> 00:40:01,799
Speaker 4: Well, at that time, we'd be very tilted to the

709
00:40:01,840 --> 00:40:05,320
Speaker 4: common stock and using other things within the equity structured

710
00:40:05,360 --> 00:40:08,600
Speaker 4: equity in particular. But fast forward two years, rate surge

711
00:40:08,640 --> 00:40:11,680
Speaker 4: higher those same companies. The stocks many cases were at

712
00:40:11,680 --> 00:40:15,520
Speaker 4: the same levels or same valuations, yet bonds had gone

713
00:40:15,520 --> 00:40:17,719
Speaker 4: from yielding two percent to maybe yielding five to five

714
00:40:17,800 --> 00:40:18,440
Speaker 4: and a half percent.

715
00:40:18,719 --> 00:40:21,279
Speaker 2: I recall a couple of the big tech companies, and

716
00:40:21,320 --> 00:40:25,640
Speaker 2: I want to include Microsoft and Apple in them in

717
00:40:25,680 --> 00:40:31,200
Speaker 2: that list issued two percent long term bonds, and yet

718
00:40:31,360 --> 00:40:34,400
Speaker 2: the yield was almost that and you had all the

719
00:40:34,480 --> 00:40:37,640
Speaker 2: upside of the equity. Like, I don't know who is

720
00:40:37,800 --> 00:40:41,360
Speaker 2: enthusiastic about that? How do you when you see a

721
00:40:41,400 --> 00:40:44,680
Speaker 2: new issuance like that two percent? Why I won't care

722
00:40:44,719 --> 00:40:47,680
Speaker 2: about two percent or is two percent attractive and a

723
00:40:47,760 --> 00:40:48,880
Speaker 2: zero rate environment?

724
00:40:49,840 --> 00:40:51,759
Speaker 3: Yeah, I think for us it's plays it.

725
00:40:51,760 --> 00:40:54,400
Speaker 4: It's much harder to have that make sense in our

726
00:40:54,440 --> 00:40:57,799
Speaker 4: strategy to play a role in the portfolio. But it's

727
00:40:57,800 --> 00:41:00,359
Speaker 4: something that you know, the more that's out out there,

728
00:41:00,440 --> 00:41:02,880
Speaker 4: we may not have participated in those new issues in

729
00:41:02,880 --> 00:41:05,440
Speaker 4: twenty twenty or twenty twenty one, but come back in

730
00:41:05,480 --> 00:41:09,160
Speaker 4: twenty twenty two when rates move and investment only they're attracted. Yeah.

731
00:41:09,160 --> 00:41:11,120
Speaker 4: I don't think you know, many investors didn't expect that

732
00:41:11,120 --> 00:41:14,000
Speaker 4: investment grade corporate bonds could drop twenty to twenty five points,

733
00:41:14,040 --> 00:41:16,160
Speaker 4: and they did. So there's always a time for it,

734
00:41:16,200 --> 00:41:17,880
Speaker 4: and the more of that that is issued in the

735
00:41:17,880 --> 00:41:21,480
Speaker 4: market just gives us that opportunity down the line.

736
00:41:21,560 --> 00:41:24,560
Speaker 2: Just because it's investment grade doesn't mean it's not subject

737
00:41:24,600 --> 00:41:27,359
Speaker 2: to interest rate risk, Right. I think that's kind of

738
00:41:27,960 --> 00:41:29,439
Speaker 2: you know, fixed income one on one.

739
00:41:29,760 --> 00:41:31,719
Speaker 4: Yeah, that was part of the you know, like I

740
00:41:31,760 --> 00:41:35,040
Speaker 4: said before, the very loud announcement that the bond market

741
00:41:35,080 --> 00:41:38,760
Speaker 4: made around its returning to more normal functioning in twenty

742
00:41:38,760 --> 00:41:39,200
Speaker 4: twenty two.

743
00:41:39,440 --> 00:41:44,359
Speaker 3: So let's talk about the flip side of that real

744
00:41:44,440 --> 00:41:45,240
Speaker 3: default risk.

745
00:41:45,360 --> 00:41:48,600
Speaker 2: We haven't seen a whole lot of defaults other than

746
00:41:48,600 --> 00:41:52,640
Speaker 2: a handful of very specific corporate.

747
00:41:52,520 --> 00:41:53,799
Speaker 3: It is a big fraud case.

748
00:41:53,840 --> 00:41:56,759
Speaker 2: Recently that company and all it's fixed income in the

749
00:41:56,800 --> 00:42:00,720
Speaker 2: automotive sector crashed and burned. But for the most part,

750
00:42:02,000 --> 00:42:06,359
Speaker 2: default rates have been fairly low. How do you look

751
00:42:06,400 --> 00:42:09,960
Speaker 2: at that risk and is it a sort of top

752
00:42:10,000 --> 00:42:14,360
Speaker 2: down macro approach or is it company by company, balance.

753
00:42:14,040 --> 00:42:15,920
Speaker 3: Sheet line by balance sheet line.

754
00:42:16,160 --> 00:42:18,120
Speaker 4: I think first from a top down standpoint. You know,

755
00:42:18,120 --> 00:42:19,719
Speaker 4: we have had a nice tailent. We have had an

756
00:42:19,760 --> 00:42:22,360
Speaker 4: economy that's been growing, We've had capital markets that have

757
00:42:22,440 --> 00:42:25,959
Speaker 4: provided solutions to companies that need to get through. There's

758
00:42:25,960 --> 00:42:31,080
Speaker 4: also been probably a fair amount of you know, restructurings

759
00:42:31,080 --> 00:42:36,000
Speaker 4: along the way that in prior market cycles would have

760
00:42:36,080 --> 00:42:37,680
Speaker 4: led to a higher default rate. So I think you

761
00:42:37,719 --> 00:42:40,759
Speaker 4: have to make that adjustment as well. I think for

762
00:42:40,880 --> 00:42:44,440
Speaker 4: us in our strategy, it's very much though about the

763
00:42:44,440 --> 00:42:48,239
Speaker 4: fundamental analysis, the ideosyncratic risk and working we want to

764
00:42:48,239 --> 00:42:53,360
Speaker 4: be in situations, particularly in lower credit quality companies, really

765
00:42:53,440 --> 00:42:57,879
Speaker 4: understanding that that path that management has to ensure that

766
00:42:58,080 --> 00:43:00,400
Speaker 4: the company moves to a more solid footing than that

767
00:43:00,440 --> 00:43:05,680
Speaker 4: could be the debt maturity wall or access to capital

768
00:43:05,800 --> 00:43:09,000
Speaker 4: and liquidity to ultimately deal with debt.

769
00:43:09,040 --> 00:43:10,560
Speaker 3: As it comes to how do.

770
00:43:10,560 --> 00:43:14,920
Speaker 2: You think about systemic risk relative to what the central

771
00:43:14,960 --> 00:43:19,040
Speaker 2: Bank is doing and the Treasury depart is doing Treasury

772
00:43:19,080 --> 00:43:22,760
Speaker 2: Department when we look at we had the financial crisis,

773
00:43:22,800 --> 00:43:26,200
Speaker 2: we had the pandemic, we had the flash crash, we

774
00:43:26,280 --> 00:43:29,279
Speaker 2: had that little hiccup with Silicon Valley Bank and some

775
00:43:29,360 --> 00:43:30,000
Speaker 2: of the other.

776
00:43:31,320 --> 00:43:31,799
Speaker 3: Banks that.

777
00:43:33,880 --> 00:43:37,359
Speaker 2: In reality were contained as opposed to what we saw

778
00:43:37,440 --> 00:43:44,040
Speaker 2: during the financial crisis. Do investors look at these institutions

779
00:43:44,080 --> 00:43:52,120
Speaker 2: as providing a put providing a ready rescue plan or

780
00:43:52,160 --> 00:43:56,000
Speaker 2: is it more less about specific companies and more about

781
00:43:56,040 --> 00:43:58,040
Speaker 2: we're not going to let the system collapse.

782
00:43:59,239 --> 00:44:00,000
Speaker 3: Yeah, that's a good quest.

783
00:44:00,400 --> 00:44:00,480
Speaker 2: You know.

784
00:44:00,560 --> 00:44:02,480
Speaker 4: I think we've been through a lot over the last

785
00:44:02,560 --> 00:44:05,120
Speaker 4: twenty years, right, and one hundred.

786
00:44:04,920 --> 00:44:07,479
Speaker 3: Years worth of stuff in a decade and a half. Yeah.

787
00:44:07,760 --> 00:44:09,960
Speaker 4: I think if you look at some of the policy measures,

788
00:44:09,960 --> 00:44:12,320
Speaker 4: maybe not you know, initially out of the gate following

789
00:44:12,360 --> 00:44:15,960
Speaker 4: the financial crisis, but you know, the long tooth that

790
00:44:16,040 --> 00:44:20,000
Speaker 4: some of those policies had and the distortion ultimately that

791
00:44:20,080 --> 00:44:22,719
Speaker 4: was created in markets, I think there's a different view

792
00:44:22,800 --> 00:44:25,200
Speaker 4: of maybe the appropriateness to some of the policy today,

793
00:44:25,239 --> 00:44:29,400
Speaker 4: and then there certainly was at the time. You look, ultimately,

794
00:44:29,800 --> 00:44:33,480
Speaker 4: the fear of systemic risks does create opportunity for us.

795
00:44:34,120 --> 00:44:36,799
Speaker 4: I think being in a highly diversified strategy, not just

796
00:44:36,840 --> 00:44:40,439
Speaker 4: from an asset class standpoint, but investing across the range

797
00:44:40,480 --> 00:44:42,640
Speaker 4: of fixed income sectors and the range of sectors within

798
00:44:42,680 --> 00:44:46,600
Speaker 4: the equity market certainly helps lend a bit of resilience

799
00:44:46,640 --> 00:44:49,840
Speaker 4: to the strategy in the case where markets become a

800
00:44:49,880 --> 00:44:54,600
Speaker 4: little bit more concerned about systemic risks. You know, I

801
00:44:54,600 --> 00:44:57,440
Speaker 4: think one of the probably more interesting things that is

802
00:44:57,480 --> 00:45:00,439
Speaker 4: happening today that I'm sure you've talked to their guess

803
00:45:00,440 --> 00:45:02,759
Speaker 4: about is the private credits base, where we've just seen

804
00:45:02,800 --> 00:45:07,239
Speaker 4: tremendous growth, tremendous amount of capital being committed there and

805
00:45:07,640 --> 00:45:10,239
Speaker 4: ultimately needs to be deployed. And I think some of

806
00:45:10,280 --> 00:45:13,040
Speaker 4: this doesn't have quite the same level of transparency that

807
00:45:13,680 --> 00:45:16,120
Speaker 4: it would have had if it was in the public

808
00:45:16,160 --> 00:45:19,000
Speaker 4: credit markets. So I think that's something that you know,

809
00:45:19,040 --> 00:45:23,480
Speaker 4: we're certainly close to and both looking at potential opportunities

810
00:45:23,480 --> 00:45:26,640
Speaker 4: because we can play in private assets within our Franklin

811
00:45:26,640 --> 00:45:29,239
Speaker 4: income strategies. But you know, if there was something that

812
00:45:29,600 --> 00:45:31,640
Speaker 4: you know, we would want to keep very much on

813
00:45:31,680 --> 00:45:34,799
Speaker 4: the radar is what is happening in that space in

814
00:45:34,880 --> 00:45:35,920
Speaker 4: terms of credit quality.

815
00:45:36,080 --> 00:45:39,719
Speaker 2: The criticism that has come up about privates is that

816
00:45:40,120 --> 00:45:44,160
Speaker 2: it's a form of volatility washing. You're not getting marks

817
00:45:44,200 --> 00:45:48,719
Speaker 2: on the regular that are market based. It's all right,

818
00:45:48,760 --> 00:45:52,200
Speaker 2: we think it's worth about this. Here's what the pars

819
00:45:52,239 --> 00:45:57,719
Speaker 2: are worth. So let's sort of ballpark this. How do

820
00:45:57,760 --> 00:45:59,840
Speaker 2: you think about that? Is that a fair criticism of

821
00:45:59,840 --> 00:46:05,040
Speaker 2: that space? And you know, the main appeal seems to be, hey,

822
00:46:05,040 --> 00:46:09,759
Speaker 2: it's non correlated, it's potentially better returns. How do you

823
00:46:09,800 --> 00:46:13,680
Speaker 2: look at at the pitch from the private credit side.

824
00:46:14,080 --> 00:46:16,479
Speaker 3: I think it's evolved in a healthy way.

825
00:46:16,560 --> 00:46:20,279
Speaker 4: I think using volatility measures is somewhat debunked. I think,

826
00:46:21,920 --> 00:46:24,000
Speaker 4: you know, leading with the sharp ratio when you're comparing

827
00:46:24,040 --> 00:46:27,160
Speaker 4: public and private assets is not the not something investors

828
00:46:27,160 --> 00:46:30,520
Speaker 4: should be focusing on, you know.

829
00:46:30,560 --> 00:46:35,839
Speaker 3: I think the ultimately it has a meaningful place.

830
00:46:36,040 --> 00:46:39,640
Speaker 4: The definition of public credit can be extraordinarily of private credit, sorry,

831
00:46:39,640 --> 00:46:41,120
Speaker 4: it can be extraordinarily wide.

832
00:46:41,719 --> 00:46:43,400
Speaker 3: And I think as that capital has.

833
00:46:43,280 --> 00:46:45,120
Speaker 4: Come in, it has start to look at a lot

834
00:46:45,120 --> 00:46:49,080
Speaker 4: of different places to to ultimately have its role in

835
00:46:49,120 --> 00:46:51,520
Speaker 4: financial market. So we certainly think it's it's it's a

836
00:46:51,640 --> 00:46:55,600
Speaker 4: viable asset. We just in any and really this goes

837
00:46:55,680 --> 00:46:58,240
Speaker 4: kind of across any asset. When you see the kind

838
00:46:58,280 --> 00:47:02,440
Speaker 4: of capital moving into a certain area, there's just a

839
00:47:02,520 --> 00:47:06,479
Speaker 4: greater risk of maybe less disciplined things happening. And that's

840
00:47:06,480 --> 00:47:09,399
Speaker 4: something that we think could become a little bit more

841
00:47:09,480 --> 00:47:10,880
Speaker 4: parent here as we move forward.

842
00:47:11,920 --> 00:47:13,040
Speaker 3: Really super interesting.

843
00:47:13,880 --> 00:47:17,280
Speaker 2: So we've talked about various asset classes, We've talked about

844
00:47:18,040 --> 00:47:19,480
Speaker 2: privates versus publics.

845
00:47:19,840 --> 00:47:23,000
Speaker 3: What do you think the average income.

846
00:47:22,680 --> 00:47:28,200
Speaker 2: Investor, yield investor doesn't understand about either the SMA they

847
00:47:28,239 --> 00:47:31,920
Speaker 2: own or the mutual funder ETF they own. I know,

848
00:47:32,719 --> 00:47:36,400
Speaker 2: fixed income is not quite as intuitive as equities. You

849
00:47:36,520 --> 00:47:40,200
Speaker 2: must hear from a lot of different clients. What's out

850
00:47:40,239 --> 00:47:44,120
Speaker 2: there amongst main street yield investors.

851
00:47:44,640 --> 00:47:47,200
Speaker 4: I think one of the biggest things that we come

852
00:47:47,239 --> 00:47:52,480
Speaker 4: across is there's just a natural view that if you're

853
00:47:52,520 --> 00:47:56,600
Speaker 4: an income investor, you own a certain type of stock

854
00:47:56,719 --> 00:47:58,680
Speaker 4: or have a certain type of equity exposure.

855
00:47:58,840 --> 00:48:00,120
Speaker 3: And maybe that's rooted.

856
00:47:59,840 --> 00:48:03,120
Speaker 4: In the concept of you know, like utility stocks, right

857
00:48:03,520 --> 00:48:06,560
Speaker 4: bond like surrogates within the equity market, that's what you

858
00:48:06,640 --> 00:48:09,279
Speaker 4: must invest in an as an income investor, and the

859
00:48:09,320 --> 00:48:13,640
Speaker 4: reality is much broader than that. Even in the components,

860
00:48:13,640 --> 00:48:17,799
Speaker 4: say of the SP five hundred, nearly forty percent not

861
00:48:17,840 --> 00:48:20,520
Speaker 4: paying a dividend or paying a very low dividend, that's

862
00:48:20,560 --> 00:48:23,840
Speaker 4: still something whether it's through convertible securities going back to

863
00:48:23,880 --> 00:48:26,919
Speaker 4: that kind of earlier part of my career, or using

864
00:48:26,960 --> 00:48:30,319
Speaker 4: structured equity where we can create a security that we

865
00:48:30,360 --> 00:48:33,000
Speaker 4: can own for a year or two years that can

866
00:48:33,080 --> 00:48:35,759
Speaker 4: replicate that kind of profile in our strategy. So that

867
00:48:35,800 --> 00:48:38,360
Speaker 4: opens up the opportunity to own and we do in

868
00:48:38,400 --> 00:48:43,919
Speaker 4: our strategy today convertible like instruments in Amazon, in Microsoft,

869
00:48:44,000 --> 00:48:46,760
Speaker 4: in Meta. So we really have a much broader cross

870
00:48:46,760 --> 00:48:49,120
Speaker 4: section in the equity markets to pursue investments.

871
00:48:49,200 --> 00:48:53,640
Speaker 2: Huh really really interesting. Sticking with dividends, the S and

872
00:48:53,719 --> 00:48:58,960
Speaker 2: P five hundred divining yield under two percent way back

873
00:48:58,960 --> 00:49:02,040
Speaker 2: when it was three and a four percent. How do

874
00:49:02,120 --> 00:49:06,080
Speaker 2: you look at dividend stocks as a whole, how attractive

875
00:49:06,719 --> 00:49:08,840
Speaker 2: they are, the valuations there?

876
00:49:09,320 --> 00:49:10,360
Speaker 3: How do you think.

877
00:49:10,120 --> 00:49:14,240
Speaker 2: About that group as a source of yield.

878
00:49:14,960 --> 00:49:17,280
Speaker 4: Yeah, I think it's a group that you want to consider.

879
00:49:17,800 --> 00:49:20,600
Speaker 4: I think back to the just the profile we've had

880
00:49:20,640 --> 00:49:24,640
Speaker 4: inequity markets the dominance of mostly non dividend paying stocks,

881
00:49:24,680 --> 00:49:27,680
Speaker 4: the megacap tech companies in particular, and not to say

882
00:49:27,680 --> 00:49:31,279
Speaker 4: that they can't continue to be decent investments, but there

883
00:49:31,400 --> 00:49:35,600
Speaker 4: is that whole cohort that still focuses on dividends, not

884
00:49:35,640 --> 00:49:40,960
Speaker 4: just dividends, but consistent growth of dividends. I mentioned Utility

885
00:49:41,000 --> 00:49:43,840
Speaker 4: Company several times. One stock that we've actually held in

886
00:49:43,880 --> 00:49:46,320
Speaker 4: the portfolio of the entire time that I've been in

887
00:49:46,400 --> 00:49:50,600
Speaker 4: portfolio managers Southern Company and what probably very few people

888
00:49:50,600 --> 00:49:55,960
Speaker 4: would expect if you go back to two thousand and two,

889
00:49:56,080 --> 00:49:59,479
Speaker 4: since that time period, Southern Companies actually matched the return

890
00:49:59,520 --> 00:50:00,600
Speaker 4: of the SPA five hundred.

891
00:50:01,480 --> 00:50:05,920
Speaker 2: Really really interesting. We're seeing signs of the market broadening out.

892
00:50:07,200 --> 00:50:11,200
Speaker 2: My favorite data point from twenty twenty five. Everybody talks

893
00:50:11,239 --> 00:50:16,080
Speaker 2: about the concentration and the Magnificent seven outperforming. Only two

894
00:50:16,120 --> 00:50:18,319
Speaker 2: of the mag seven beat the S and P five

895
00:50:18,400 --> 00:50:22,480
Speaker 2: hundred last year. Amazing data point. How are you looking

896
00:50:22,520 --> 00:50:24,880
Speaker 2: at the rest of the S and P five hundred?

897
00:50:24,880 --> 00:50:28,120
Speaker 2: How are you looking at the value sector? Can we

898
00:50:28,280 --> 00:50:32,640
Speaker 2: reasonably expect to see this broadening continue in the future.

899
00:50:33,280 --> 00:50:35,960
Speaker 4: Yeah, we do think, you know, there is some interesting

900
00:50:36,040 --> 00:50:39,480
Speaker 4: value in parts of the equity market, and maybe they

901
00:50:39,480 --> 00:50:41,960
Speaker 4: are companies that have been a little bit out of

902
00:50:41,960 --> 00:50:45,959
Speaker 4: the spotlight. You know, we do have a pretty good

903
00:50:46,040 --> 00:50:49,279
Speaker 4: amount of sector diversification, so we're finding opportunities in these

904
00:50:49,320 --> 00:50:53,160
Speaker 4: different areas. It'll be healthcare, it'll be industrials, energy utilities,

905
00:50:53,920 --> 00:50:54,760
Speaker 4: even in materials.

906
00:50:54,800 --> 00:50:56,400
Speaker 3: Some of these trends.

907
00:50:56,719 --> 00:51:02,680
Speaker 4: Let's take globalization and really this move still evolving into

908
00:51:02,800 --> 00:51:08,200
Speaker 4: maybe hemisphere controls and near shoring of supply chains, some

909
00:51:08,239 --> 00:51:10,359
Speaker 4: things that came out of the pandemic. You know, all

910
00:51:10,400 --> 00:51:13,440
Speaker 4: of that has pretty significant implications. So finding companies that

911
00:51:13,560 --> 00:51:17,759
Speaker 4: have that a play on a select theme that you

912
00:51:17,800 --> 00:51:19,799
Speaker 4: want to that you identify and want to play.

913
00:51:19,800 --> 00:51:21,520
Speaker 3: We think there's a lot of that opportunity in the

914
00:51:21,520 --> 00:51:22,200
Speaker 3: equity market.

915
00:51:22,280 --> 00:51:26,480
Speaker 2: I've been mostly thinking about and talking about US equities.

916
00:51:27,400 --> 00:51:32,680
Speaker 2: Last year was the first year where MSCI developed and

917
00:51:33,160 --> 00:51:37,680
Speaker 2: even emerging market just wherever you looked overseas thumped the US,

918
00:51:37,760 --> 00:51:41,000
Speaker 2: and the US was you know, up almost eighteen percent,

919
00:51:41,440 --> 00:51:44,120
Speaker 2: nas deck up a little over twenty percent. How do

920
00:51:44,200 --> 00:51:46,000
Speaker 2: you look at the rest of the world when it

921
00:51:46,040 --> 00:51:49,440
Speaker 2: comes to either fixed income or equities.

922
00:51:49,680 --> 00:51:52,800
Speaker 4: Yeah, you know, I certainly think that made a great

923
00:51:52,840 --> 00:51:56,920
Speaker 4: storyline for twenty twenty five. Reason being, you know, we

924
00:51:57,000 --> 00:51:58,719
Speaker 4: go back and look at twenty three and twenty four.

925
00:51:58,840 --> 00:52:01,480
Speaker 4: Though US doc sent out performance so massively so.

926
00:52:01,719 --> 00:52:03,760
Speaker 3: Over the past fifteen years or so, at.

927
00:52:03,640 --> 00:52:05,840
Speaker 4: Some level, we do think it was primed for a

928
00:52:05,880 --> 00:52:09,640
Speaker 4: little bit of a reallocation towards non US markets. And

929
00:52:09,680 --> 00:52:12,640
Speaker 4: then you add on some of the policy dynamics around

930
00:52:12,680 --> 00:52:13,319
Speaker 4: tariffs and.

931
00:52:13,840 --> 00:52:15,960
Speaker 2: The dollar dropping almost ten percent.

932
00:52:15,719 --> 00:52:18,160
Speaker 4: Exactly, and that really led to some of that reallocation.

933
00:52:18,320 --> 00:52:21,280
Speaker 4: A lot of the outperformance of non US equity markets

934
00:52:21,280 --> 00:52:23,759
Speaker 4: in twenty five did happen during that period of time.

935
00:52:23,840 --> 00:52:25,640
Speaker 4: So if you were to take a look at more

936
00:52:25,640 --> 00:52:28,280
Speaker 4: of the second half, a little bit more balance between

937
00:52:28,320 --> 00:52:28,840
Speaker 4: the markets.

938
00:52:29,320 --> 00:52:31,799
Speaker 2: And then our last question before we get to my

939
00:52:31,880 --> 00:52:34,520
Speaker 2: favorite questions, I ask well, I'm like, guess what do

940
00:52:34,520 --> 00:52:38,520
Speaker 2: you think investors and traders are not talking about thinking

941
00:52:38,560 --> 00:52:41,920
Speaker 2: about that? Perhaps they should be in it and you

942
00:52:41,960 --> 00:52:45,560
Speaker 2: could you go anywhere investor, So you go anywhere with this?

943
00:52:45,640 --> 00:52:46,920
Speaker 3: What assets?

944
00:52:46,920 --> 00:52:52,160
Speaker 2: Geography, policies, data points are getting overlooked but shouldn't.

945
00:52:53,040 --> 00:52:55,480
Speaker 4: Yeah, I think we're going to keep coming back to

946
00:52:55,640 --> 00:52:58,640
Speaker 4: right now, we really feel like policies paramount, So really

947
00:52:58,719 --> 00:53:03,600
Speaker 4: focusing on policy will will ultimately take the market. Midterm

948
00:53:03,640 --> 00:53:05,960
Speaker 4: elections are going to continue to be a very significant

949
00:53:06,000 --> 00:53:09,440
Speaker 4: overhang in markets. Maybe one of the things that concerns

950
00:53:09,480 --> 00:53:13,440
Speaker 4: me that investors are not talking about is if we

951
00:53:13,440 --> 00:53:15,600
Speaker 4: were to think about the level of uncertainty that some

952
00:53:15,640 --> 00:53:20,560
Speaker 4: of these dynamics naturally create, and how that right now

953
00:53:20,640 --> 00:53:24,000
Speaker 4: really does not translate to the kind of expected volatility

954
00:53:24,000 --> 00:53:26,359
Speaker 4: that might be there in markets. So just looking this

955
00:53:26,400 --> 00:53:29,960
Speaker 4: morning at something like the victor in the VIX index,

956
00:53:30,000 --> 00:53:31,839
Speaker 4: which a lot of investors will go to when they

957
00:53:31,840 --> 00:53:35,080
Speaker 4: want to see applied volatility back to the levels it

958
00:53:35,120 --> 00:53:38,359
Speaker 4: was at in February of twenty twenty five, So we

959
00:53:38,360 --> 00:53:40,400
Speaker 4: did see a very very low, right low low, and

960
00:53:40,440 --> 00:53:42,960
Speaker 4: that tends to be, you know, a point where you know,

961
00:53:43,000 --> 00:53:45,479
Speaker 4: we want to be a little bit more cautious when

962
00:53:45,880 --> 00:53:48,320
Speaker 4: naturally there is not a lot of volatility expected to

963
00:53:48,360 --> 00:53:51,200
Speaker 4: be coming in markets. You know, for us, that means

964
00:53:51,239 --> 00:53:55,000
Speaker 4: we can stay invested, we can focus on areas that

965
00:53:55,080 --> 00:54:01,000
Speaker 4: deliver attractive income and really maintaining that nimbleness in the portfolio,

966
00:54:01,120 --> 00:54:02,360
Speaker 4: in the strategy.

967
00:54:01,840 --> 00:54:05,239
Speaker 2: That we have really really interesting ed Let's jump to

968
00:54:05,280 --> 00:54:07,640
Speaker 2: my favorite questions that I ask all of my guests,

969
00:54:07,680 --> 00:54:12,000
Speaker 2: starting with tell us about your mentors who helped shape

970
00:54:12,080 --> 00:54:12,760
Speaker 2: your career.

971
00:54:14,000 --> 00:54:17,239
Speaker 4: Yeah, i'd certainly first and foremost on that list is

972
00:54:17,760 --> 00:54:22,400
Speaker 4: Charles Johnson joining Charlie in two thousand and two as

973
00:54:22,440 --> 00:54:25,880
Speaker 4: a member of the Franklin Income portfolio management team and

974
00:54:25,960 --> 00:54:30,279
Speaker 4: really being able to understand his approach to investing and

975
00:54:30,920 --> 00:54:35,480
Speaker 4: hearing the tremendous experiences that he had over time. But

976
00:54:35,520 --> 00:54:39,480
Speaker 4: I think more importantly him really enabling me to become

977
00:54:39,800 --> 00:54:42,400
Speaker 4: a bit of the investor that I am today. And

978
00:54:44,280 --> 00:54:48,520
Speaker 4: as we went through that transition and then went through

979
00:54:48,560 --> 00:54:53,279
Speaker 4: difficult times, particularly the financial crisis, that awareness that, look,

980
00:54:53,320 --> 00:54:55,840
Speaker 4: we're not going to get every situation right, we're not

981
00:54:55,880 --> 00:54:59,160
Speaker 4: going to make every perfect investment, but really how you

982
00:55:00,040 --> 00:55:02,520
Speaker 4: handle it and how you stay focused on the people

983
00:55:02,600 --> 00:55:08,279
Speaker 4: that have entrusted their money to us is just paramount importance.

984
00:55:08,480 --> 00:55:10,800
Speaker 4: And you know, one of the first things that Charlie

985
00:55:10,840 --> 00:55:13,960
Speaker 4: asked me to do in two thousand and two was.

986
00:55:13,960 --> 00:55:14,719
Speaker 3: A difficult time.

987
00:55:14,760 --> 00:55:17,520
Speaker 4: Interest rates were coming down, there was a modest dividend

988
00:55:17,640 --> 00:55:19,960
Speaker 4: cut for Franklin Income Fund, which is not a very

989
00:55:19,960 --> 00:55:24,440
Speaker 4: common current certainly not something that we enjoy doing. And

990
00:55:24,520 --> 00:55:26,960
Speaker 4: getting a handwritten letter from an investor or a woman in

991
00:55:27,000 --> 00:55:30,000
Speaker 4: Tennessee that was a little concerned that her dividend check

992
00:55:30,040 --> 00:55:33,680
Speaker 4: had gone down. And here he is the chairman and

993
00:55:33,760 --> 00:55:37,799
Speaker 4: CEO of Franklin and portfolio manager still and he gave

994
00:55:37,880 --> 00:55:40,239
Speaker 4: me that handwritten note from the investor and asked me

995
00:55:40,280 --> 00:55:42,640
Speaker 4: to respond directly to really and that was.

996
00:55:42,600 --> 00:55:44,319
Speaker 2: Just you write a letter or did you pick up

997
00:55:44,320 --> 00:55:44,880
Speaker 2: the phone.

998
00:55:45,200 --> 00:55:48,279
Speaker 4: No, we wrote a letter, and that was something I

999
00:55:48,280 --> 00:55:51,080
Speaker 4: don't recall having the phone number. But we did write

1000
00:55:51,080 --> 00:55:53,200
Speaker 4: a letter and really kind of laid it out and

1001
00:55:53,239 --> 00:55:56,120
Speaker 4: tried to help her understand just the dynamic. But to me,

1002
00:55:56,320 --> 00:56:00,919
Speaker 4: that really resonated that, Wow, this is so important to him.

1003
00:56:01,480 --> 00:56:03,640
Speaker 4: This is really we need to stay connected to just

1004
00:56:03,800 --> 00:56:06,960
Speaker 4: the role we are playing in individuals lives. And I

1005
00:56:07,000 --> 00:56:09,520
Speaker 4: think that's something that I've really tried to not only

1006
00:56:09,960 --> 00:56:12,719
Speaker 4: carry on in my career, but certainly instill in the

1007
00:56:12,719 --> 00:56:14,840
Speaker 4: broader team that helps manage Franklin income.

1008
00:56:15,160 --> 00:56:17,799
Speaker 3: Easy to lose sight of that, right, So let's talk

1009
00:56:17,840 --> 00:56:20,440
Speaker 3: about books. What are some of your favorites? What are

1010
00:56:20,440 --> 00:56:21,360
Speaker 3: you reading right now?

1011
00:56:22,320 --> 00:56:24,680
Speaker 4: Wow, I'll start with maybe what I'm reading right now,

1012
00:56:24,719 --> 00:56:29,600
Speaker 4: And this is something I've always enjoyed, history and geography.

1013
00:56:30,840 --> 00:56:32,000
Speaker 3: The end of last year.

1014
00:56:31,920 --> 00:56:36,239
Speaker 4: I picked up a place called Yellowstone because I was

1015
00:56:36,280 --> 00:56:38,520
Speaker 4: planning a siblings trip to Yellowstone and it was just

1016
00:56:38,600 --> 00:56:42,280
Speaker 4: really fascinating the history. I'm now reading A Daunted Courage

1017
00:56:42,320 --> 00:56:45,880
Speaker 4: by Samuel Ambrose, which is more of the Lewis and

1018
00:56:45,920 --> 00:56:48,600
Speaker 4: Clark expedition. So maybe this summer I'll be out in

1019
00:56:48,640 --> 00:56:50,600
Speaker 4: Glacier or in the Bitterroot Mountains.

1020
00:56:50,239 --> 00:56:51,240
Speaker 3: On a trail somewhere.

1021
00:56:51,280 --> 00:56:56,399
Speaker 4: But I really enjoy, you know, reading, so I'm more

1022
00:56:56,440 --> 00:57:00,680
Speaker 4: of a nonfiction, you know, kind of guy. Occasionally I'll

1023
00:57:00,680 --> 00:57:03,359
Speaker 4: pick up something else. Probably my favorite of all time

1024
00:57:03,440 --> 00:57:06,360
Speaker 4: is the Hemingway classic from the Bell Tolls, where you

1025
00:57:06,360 --> 00:57:10,920
Speaker 4: know you're reading something that plays out over seventy two

1026
00:57:11,080 --> 00:57:14,879
Speaker 4: or so hours, and just something like that that really

1027
00:57:14,920 --> 00:57:17,680
Speaker 4: can let your mind kind of go and the imagination

1028
00:57:17,800 --> 00:57:23,120
Speaker 4: take hold. Is always something that I've enjoyed too. I

1029
00:57:23,200 --> 00:57:25,200
Speaker 4: did just pick up a new copy. I think it's

1030
00:57:25,240 --> 00:57:29,040
Speaker 4: probably something that as an American we should all read.

1031
00:57:29,760 --> 00:57:34,040
Speaker 4: And certainly Walter Isaacson is not somebody that needs a

1032
00:57:34,080 --> 00:57:37,960
Speaker 4: plug of any sort. He wrote more of a pamphlet

1033
00:57:38,160 --> 00:57:41,720
Speaker 4: called the Greatest Sentence Ever Written, and that's really thing

1034
00:57:41,760 --> 00:57:43,640
Speaker 4: that I think with America today.

1035
00:57:43,760 --> 00:57:45,000
Speaker 3: His books are giant.

1036
00:57:45,320 --> 00:57:49,200
Speaker 4: I think this is around fifty pages, so it's the

1037
00:57:49,240 --> 00:57:53,560
Speaker 4: greatest sentence ever written. And I haven't gone through it yet,

1038
00:57:53,560 --> 00:57:55,640
Speaker 4: but I've heard heard him speak about it, and it's

1039
00:57:55,640 --> 00:57:59,400
Speaker 4: just very inspiring. And like I said, it's something that

1040
00:58:00,000 --> 00:58:03,360
Speaker 4: second sentence of the Declaration Independence with America two fifty

1041
00:58:03,440 --> 00:58:06,280
Speaker 4: is maybe something that we should all step back and

1042
00:58:06,360 --> 00:58:07,479
Speaker 4: make sure we read this year.

1043
00:58:08,040 --> 00:58:12,000
Speaker 2: I have for Whom the Bell Tolls on my list,

1044
00:58:12,560 --> 00:58:15,919
Speaker 2: and I just read on vacation last month, The Sun

1045
00:58:16,000 --> 00:58:19,760
Speaker 2: also Rises, But nothing beats the Old Man in the Sea.

1046
00:58:20,000 --> 00:58:22,360
Speaker 3: That book just always speaks.

1047
00:58:22,000 --> 00:58:25,720
Speaker 2: To me, not just as a fisherman, but his prose

1048
00:58:25,800 --> 00:58:28,440
Speaker 2: is just so compact and tight.

1049
00:58:28,240 --> 00:58:30,680
Speaker 3: And powerful, really very impressive.

1050
00:58:31,520 --> 00:58:34,080
Speaker 2: You mentioned Yellowstone, so I have to ask, what are

1051
00:58:34,080 --> 00:58:35,200
Speaker 2: you streaming these days?

1052
00:58:35,240 --> 00:58:36,520
Speaker 3: What's keeping you entertained.

1053
00:58:37,480 --> 00:58:40,280
Speaker 4: I haven't started Landman two yet, but that's probably next.

1054
00:58:41,480 --> 00:58:45,800
Speaker 4: You know, I really kind of like to and maybe

1055
00:58:45,800 --> 00:58:48,520
Speaker 4: there is a sci fi element growing up my sci

1056
00:58:48,520 --> 00:58:51,760
Speaker 4: fi choice with probably something like Stargate SG one or

1057
00:58:51,800 --> 00:58:54,120
Speaker 4: something where you can really detach, and I think that's

1058
00:58:54,680 --> 00:58:59,320
Speaker 4: an important component. Let the mind rest and be transported

1059
00:58:59,360 --> 00:58:59,840
Speaker 4: a little bit.

1060
00:59:01,880 --> 00:59:06,400
Speaker 2: Let's jump to our final two questions. What sort of

1061
00:59:06,440 --> 00:59:10,320
Speaker 2: advice would you give to a recent college grad interested

1062
00:59:10,320 --> 00:59:15,840
Speaker 2: in a career in fixed income, portfolio management or just investing.

1063
00:59:16,840 --> 00:59:19,240
Speaker 4: In a way, it would be just that I see

1064
00:59:19,400 --> 00:59:24,680
Speaker 4: far too many college students, recent grads that think they've

1065
00:59:24,720 --> 00:59:28,680
Speaker 4: already decided what they want specializing early yes, or are

1066
00:59:28,760 --> 00:59:32,120
Speaker 4: having a definitive I need to find the job in

1067
00:59:32,200 --> 00:59:34,880
Speaker 4: this and I just reflect on my own path that.

1068
00:59:37,480 --> 00:59:38,480
Speaker 3: It evolves.

1069
00:59:38,560 --> 00:59:41,240
Speaker 4: Quickly, Get in a seat somewhere in an industry that

1070
00:59:41,360 --> 00:59:43,720
Speaker 4: you think is interesting, and see where it takes you,

1071
00:59:43,800 --> 00:59:45,600
Speaker 4: and don't be afraid to put your hand up when

1072
00:59:45,600 --> 00:59:47,400
Speaker 4: opportunities arise.

1073
00:59:48,120 --> 00:59:50,640
Speaker 3: It's you have plenty of time. You have nothing but time.

1074
00:59:51,240 --> 00:59:53,040
Speaker 2: Don't assume that first gig is where you're going to

1075
00:59:53,080 --> 00:59:56,040
Speaker 2: spend the next forty years of your career.

1076
00:59:56,120 --> 00:59:57,000
Speaker 3: Is that your advice?

1077
00:59:57,920 --> 01:00:02,000
Speaker 2: You know it can happen, It certainly can. And our

1078
01:00:02,040 --> 01:00:04,720
Speaker 2: final question, what do you know about the world of

1079
01:00:04,760 --> 01:00:08,919
Speaker 2: investing today? You wish you knew thirty plus years ago

1080
01:00:09,040 --> 01:00:10,720
Speaker 2: when you were first getting started.

1081
01:00:11,280 --> 01:00:13,120
Speaker 4: Oh, it's such a good question. I mean a lot

1082
01:00:13,120 --> 01:00:15,280
Speaker 4: of ways. You know, you almost wouldn't want things to

1083
01:00:15,280 --> 01:00:19,520
Speaker 4: be to be entirely different. You know, I was fortunate

1084
01:00:19,520 --> 01:00:23,480
Speaker 4: in that I found that role relatively early on. That

1085
01:00:23,600 --> 01:00:26,800
Speaker 4: really solidified the kind of investor I think I am.

1086
01:00:26,840 --> 01:00:29,440
Speaker 4: What is that inherent DNA that I have as an investor?

1087
01:00:29,600 --> 01:00:31,960
Speaker 4: So I think the sooner you can kind of tap

1088
01:00:31,960 --> 01:00:35,560
Speaker 4: into that and then explore ways to follow your investing

1089
01:00:35,600 --> 01:00:36,240
Speaker 4: based upon that.

1090
01:00:36,360 --> 01:00:38,000
Speaker 3: Don't try to be somebody that you're not.

1091
01:00:38,280 --> 01:00:42,560
Speaker 4: You know, and I have colleagues that manage pure growth

1092
01:00:42,560 --> 01:00:45,120
Speaker 4: funds that follow momentum strategies, and I think they do

1093
01:00:45,160 --> 01:00:47,840
Speaker 4: a phenomenal job. I also very much know that's not

1094
01:00:47,920 --> 01:00:50,160
Speaker 4: a job that I would have ever excelled at.

1095
01:00:50,280 --> 01:00:52,760
Speaker 2: What's the old joke at Will Street is an expensive

1096
01:00:52,760 --> 01:00:54,280
Speaker 2: place to figure out.

1097
01:00:54,080 --> 01:00:54,560
Speaker 3: Who you are?

1098
01:00:55,080 --> 01:00:58,160
Speaker 2: Absolutely, Ed, thank you so much for being so jenerfer

1099
01:00:58,160 --> 01:01:01,480
Speaker 2: with your time. This has been really quite fascinating.

1100
01:01:01,560 --> 01:01:05,360
Speaker 3: We have been speaking with Ed Perks. He's CIO of Franklin.

1101
01:01:05,000 --> 01:01:08,800
Speaker 2: Income Fund as well as member of the executive committee

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Speaker 2: and PM for a number of different funds. If you

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Speaker 2: enjoy this conversation, check out any of the six hundred

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Speaker 2: we've done over the prior twelve years. You can find

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Speaker 2: those at Bloomberg, iTunes, Spotify, YouTube.

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Speaker 3: Wherever you get your favorite podcasts.

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Speaker 2: At I would be remiss if I didn't thank our

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Speaker 2: corrac team that helps put these conversations together each week,

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Speaker 2: I'm Barry Ritolts. You've been listening to Bloomberg's Masters and

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Speaker 2: Business