On the latest Masters in Business podcast, my conversation with Ed Perks.

He has been with Franklin Templeton since 1992.

He has all of these various titles. He's not only PPM of their flagship

Franklin income funds, but he's CEO of Franklin Income Investors, president of

their Advisors group, member of the Executive Committee.

Not many people have been with the same firm their entire career, right off

right out of college. Ed Perks is one of them.

Few people more knowledgeable about fixed income and non bond yield.

I thought this conversation was fascinating and I think you will.

Also, with no further ado, my conversation with Franklin Templeton's

Ed Perks.

Ed Perks, Welcome to Bloomberg. Thanks, Barry.

It's good to be with you. Well, that's really quite an impressive

CV. Before we get into the various assets

you manage, let's let's start with your background, economics and political

science, B.A. from Yale.

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

What was the original career plan? Yeah, it certainly wasn't finance.

And, you know, at Yale, I really kind of, you know, certainly had at a broad

cross-section of of studies. The Yale, like many of my classmates, I

think if it wasn't med school, it was either law school or or going into

government. I think that's kind of some of what I

was thinking during school really didn't didn't transition to trying to pursue a

career in finance until actually after I graduated.

And at that time I moved out West. I wanted to, you know, experience a

different part of the country. And particularly in the early 1990s, the

San Francisco Bay Area had a pretty robust financial services community.

And so I headed out after graduation without a job and was able to land at

Franklin. Plus, you're done at 1:00 in the

afternoon. That's, that's the you do start a bit

early start at 530. It's very very five.

And I remember walking into an office in San Francisco and at 845 there are pizza

boxes around and it's sort of, Oh, that's right.

We're on New York. Wall Street time because the market is

live. So let's talk a little bit about the

1990s. You joined Franklin Templeton.

Is this your first gig out of school in 1992?

You've been at Franklin Templeton your entire career, is that right?

Yes, it is. That is pretty rare these days.

Tell us about what attracted you to Franklin Templeton in the beginning and

what's kept you there for. Geez, coming up on 40 years.

Is that right? Yeah.

Well, when I loaded the car up on Long Island, I drove a small Mitsubishi

Mirage hatchback across country. No satellite radio, right?

No air conditioning, no cell phones.

So it was a different time. But got out to California, really had

the had the thought that I might experience the West Coast for a year and

a half or two years and and make my way back to New York and get get the real

job, so to speak. Right.

You know, and I was really fortunate to land at Franklin at a time of just

tremendous growth, not just in the industry, but for our firm overall.

I actually joined the original Franklin funds prior to that.

Prior to the Templeton merger. Yeah.

Wow. So that yeah, that certainly dates me

and makes me, I guess, a little O.G. So, you know, I think what was really

interesting and I landed at first and took a role in, in marketing research, I

knew very little about the industry structure and I wanted to

learn and it gave me a great cross-section of different investment

strategies. I had taken, you know, a class at Yale

Investment Analysis taught by, you know, pretty legendary endowment manager David

Swensen, of course. And I think at the time I maybe hoped

that it was a bit more of a, you know, a typical stocks for jocks kind of class.

And in fact, it was not. But that did plant a little bit of the

seed and, you know, but I knew I had work to do to kind of prepare myself for

a role ultimately in pursuing research. And and after about a year and a half

and taking one of the CFA exams, I was able to get that junior role as a

research analyst in the Franklin Equity team.

1990 San Francisco. The tech boom was just ramping up late

eighties, early nineties. What what was that experience like?

That had to be the roaring nineties. Had to be quite an experience in San

Francisco. Yeah, I'd say it really kind of kicked

into gear more in the 96 seven time period and then certainly the irrational

exuberance eras and that was premature, but there were still plenty of plenty of

time to go in it. But it was a very exciting time to be

out there, not just in the tech community, but thinking about some of

the regional investment banks, Montgomery Securities and Hambrecht and

Quest and Hosiery. Stephens You know, so you had a lot

happening. The the the economy as a whole, I'd say,

at that time was was far more diversified than it is maybe today.

Obviously, technology is such a dominant player within Northern California.

Yeah, it's not that anything else got smaller, it's just that tech ballooned

up so large and it dominates everything. Although to be fair, I think finance has

it hasn't grown as fast as tech, but it certainly expanded, you know, fairly

lockstep with technology. What's fascinating about your time, your

early days at Franklin Templeton, you did credit, you did convertibles, you

did equities. How important was that?

Sort of cross that experience to eventually becoming more of a

specialist? Yeah, I think it was a key component of

it. I really was drawn to early days.

I was drawn to the different type of analysis that you would perform based

upon the kind of company you were. You were following the industry you were

following. And we did have a a broad cross-section

of of strategies managed at Franklin. So as an analyst following companies,

you kind of always had something to pitch a given portfolio manager on.

And that was something that really attracted me.

So whenever we had some movement in the group or growth adding resources in

certain area, that was interesting. I kind of was inclined to put my hand up

and that led to a lot of the progression of of the career ultimately moving out

of the analyst role in 1997 and and taking on the duties of portfolio

manager for that dedicated Frank Lincoln Convertible Securities Fund.

So over all these different experiences and over time, how does that lead to the

evolution of your philosophy as an investor?

What what beliefs did it strengthen and what beliefs did you learn to know?

This just isn't generating any anything that's worthwhile anymore?

Well, I think the first thing was really kind of understanding who you are as an

investor. And I'm a pretty firm believer in this

that over time I came to understand that I like a certain type of investing.

I like buying things that that trade at reasonable valuations that might not

have an immediate catalyst, but something that you can look out over a

longer period of time by having that longer term investment horizon income

naturally became something you would focus on

in terms of just thinking about it from the standpoint of getting paid to wait

while your investment kind of performs the way you think it has the potential

to. So that's something that that certainly

started to resonate at the early part of my career.

But I would say actually getting involved in convertible securities was a

pretty significant defining moment for me in that you can pursue investing in

convertibles, which are hybrids, which have fixed income characteristics and

have an equity tie as well, and seek out investments that have the potential for

positive asymmetry. So securities where with a given time

horizon and a certain move in the underlying common stock, you'll do

better on the upside than you will get hurt on the downside.

And it was just something that really appealed to me and I think is a core

component of what we've done historically and tried to do in our

multiasset income strategies. Let me throw something out to you.

I have noticed as both a trader and an investor that the equity guys who

started in fixed income seem to have a greater appreciation for risk management

and for thinking about asymmetrical trades, where your downside is X and

your upside is three x or ten X or whatever.

What is it about fixed income analysts and investors that makes them so hyper

focused on risk management? Yeah, it's fundamentally you're just

doing a different, different type of analysis.

And one of the things that we found kind of most fascinating over the years is

given we have an internal team of equity analyst and an internal team of credit

analysts. That opportunity, when you're meeting

with company management and you'll sit down with both analysts and companies,

typically come to investors thinking they're on an equity roadshow or a fixed

income roadshow. Right.

And when you sit down and now you want to talk about it from both perspectives,

that's some of the most interesting meetings we've had over the years with

companies. They, in fact, do have kind of different

stories for those different investor groups.

So I think it gives you that that broader perspective of of what the

capital allocation decision making process looks like at a given company.

And ultimately what we're doing is trying to figure out what money they

will have, i.e. what our margins were, how our how our

profits growing and what they'll do with that capital.

So in your present roles, you have the latitude to kind of go anywhere either

in the cap structure or the allocation table or geographically.

How does that affect how you think about what what's interesting, what's what's

attractive? Like?

It's almost overwhelming, that sort of freedom to pretty much consider almost

every asset class. Yeah, I would say that's actually kind

of our ideal situation and we are in that today.

I think there was a lot of a long period of time post-financial crisis 2009

where, you know, almost the intent of the policy was to eliminate large

sectors in the fixed income markets from being attractive to investors and.

Right, exactly. So,

you know, I really kind of view today and, you know, the bond market.

It being back was announced pretty loudly in 2022.

So, you know, today the fact that we can look across,

you know, the swath of fixed income markets and find, you know, interesting

areas, you know, it may be more income focused, i.e.

if we're not expecting a significant downdraft in interest rates, the total

return potential from fixed income might be more muted, but they can play a

really interesting role in generating that kind of stable core total part of

total return that we expect income to be.

We're going to talk a lot about fixed income coming up, but your CIO of income

investors, what's the biggest macro variable that the CIO of Franklin

Templeton Income Investors looks at every morning?

Yeah, I mean, we really think there's kind of two components to what we need

to do. And, you know, one I would put in is

more kind of where we can be proactive. It's the, you know, the extent to which

we think there's risk on the equity side of markets,

credit risk in markets or macro or interest rate risk.

Those are the three kind of big risk components that we actively try to think

about. I would say that sets our kind of

compass for how we want to allocate the assets.

And even though over long market cycles, we may be pretty equally split between

fixed income and equity assets in our strategy at times, even in the last five

years, that's been 75, 25 one way and then flipped the other way.

So there is a tremendous amount of latitude and and then, you know, I think

on a more daily kind of basis, certainly something that we're experiencing in

pretty good dose to start the year is those more reactive components of risk.

And, you know, we do think right now policy matters a lot.

And it's it might be fiscal policy, monetary policy,

regulatory policy, but were and were reminded almost on a daily basis now

that there's a lot of other factors, foreign policy, geopolitical risks that

that certainly influence markets. It doesn't mean we're going to make

wholesale changes to the portfolio, but being able to engage and get our

investment team focused on on where opportunities might be is a big part of

the day to day role. So so let me ask that question.

We're waiting for some major Supreme Court decisions in a whole variety of

areas. There's the ongoing battle between the

White House and the Federal Reserve that that's been heating up lately.

It's been sort of simmering for really a year.

It seems every morning you wake up and there's some tweet or something else

that are roiling the markets, Wait, we're going to cap credit cards 10%.

Good luck getting a credit card if that happened.

How do you interact with all this news flow?

Is it something you ignore? Is it noise that you have to sift

through or are you constantly hunting for what's really meaningful here?

That's not reflected in prices already? What could potentially move markets if

this seems to catch a little bit of fire?

Yeah, I think the the desire would be to, you know, tune out that noise too

largely ignored. But the reality and markets those

examples that you given drove some pretty significant movements even if

just for a short period of time, you know I would use the major banks, those

that are more focused on issuing credit cards.

As an example, yesterday in stock price activity last week, maybe some of the

large defense contractors, how they were impacted by some of the announcements,

those are some pretty significant swings that we do have to pay attention to and

do have to think about whether or not there's the opportunity.

But I think if you can step back, think about it a little bit more rationally.

Clearly, we want to engage and get the insights from our dedicated analysts on

those specific situations. That's where some opportunities come in.

And, you know, I think whether it be an isolated, very

specific, maybe more short term event, that's, you know, one one instance.

But if we go back a year, you know, there was a 2 to 3 week period of

tremendous volatility around a policy shift that really gave investors an

opportunity around that time of day and liberation day.

Yeah, it was a week of, you know, turmoil.

And then on pause and off to the races, we had, you know, the most recent DOJ

referral with the Federal Reserve. I spoke to a buddy on a Bond desk over

the weekend when this happened. And I love the attitude of, well, look

at the two year, it doesn't care, so why should I care?

Is that a little too glib? How do you look at how the market,

especially fixed income market, reacts to the news flow?

Is that really the ultimate determiner of what's noise and what signal?

Yeah, I think it's a good but I might broaden it from the two year to say,

let's look at the curve. Okay.

Especially today where I think there's probably more sensitivity around what.

Our longer term interest rates are sitting and potentially could go.

You know, to me, anything that that increases the confidence, the raise the

uncertainty level around the economy I think are challenges that, you know, if

we were to see the long end respond unfavourably to would be quite

problematic for markets. So so let's talk a little bit about

what's going on in fixed income. Lot of cross-currents.

Here is what's happening with the Fed. Here's what's happening with the dollar

overseas has become more attractive. Let me just right out of the box, where

are you seeing the most compelling risk adjusted income opportunities today,

high yield investment grade dividend equities.

And I know you go anywhere. So what do you like these days?

Yeah, you know, I would say in fixed income, we really pretty diversified

across the the range of for us that is is U.S.

treasuries. It's agency mortgage backed securities,

it's investment grade corporate bonds and high yield corporate bonds.

And, you know, we have different factors there.

You know, one, we do think the carry or the income component of fixed income is

is quite attractive again today. And like I said before, it's it's been a

while since, you know, that was the case or there was a long period of time where

that was certainly not not a function, not a benefit that investors and fixed

income had spreads on the corporate side.

Do you know, concern us a little bit? But at the same time, you know, we have

seen extended periods of time historically where spreads spreads have

stayed on the tighter side, near historical lows.

So, you know, our view is that you want to be diversified, look a little bit

more at idiosyncratic risk. So sometimes in our in our strategy, we

do think the biggest lever that we have moving from one asset class to another

is is the most appropriate. We certainly had that in in 2021 and

2023. Today we think that lever is a little

less important and it's a little bit more about relative value between

sectors and or security selection, idiosyncratic risk.

So I think in the past year, moving out of some of the significant overweight

that we had in investment grade corporate debt, for example, in favor of

agency mortgages because spreads had really widened out, was something that

worked out well for us in 2025. I noticed you didn't mention tips

Treasury Inflation-protected Securities. Is that something that at the current

level of inflation, in the current yield there, is that attractive?

Yeah, it's not something that we're focused on on today.

You know, I think to the extent that we see inflation continue, you know, to

come down and settle in at a lower level, that tips may become something

that we want in the portfolio. To the extent that then inflation could

have surprise to the upside. And let's talk a little bit about those

corporate you mentioned. Are we getting enough spread between

investment grade and high yield corporates to make the juice worth the

squeeze? Or because for a long time there's

hardly any daylight between the yield in both?

How do you look at that? Are corporates cheap or expensive high

investment grade relative to high yield? Yeah, we do think moving up into the

higher credit quality components of high yield is probably one of the more

attractive areas. You know, we also like to so if you're

looking at triple B, double B spreads, we want to be in the higher quality

credits to the extent that we're owning a broader section of high yield, which

we do in our strategy is emphasis and more on the latter security selection.

What is an individual company doing to be able to refinance the debt to term

out their maturities or ultimately to improve the overall credit quality?

We do think rating agencies lag by a significant margin.

And if you can get ahead of that and use your fundamental analysis, that that's a

that's an area within the fixed income markets.

We want to be focused on trend. Remember who I'm stealing this line

from, but it's definitely not mine, which is there's so much variation in

the B-minus space that some of it is junk and some of it is IgG and maybe

some of it's in between, but the variances is enormous.

Fair statement. Yeah, I think that is.

And, you know, certainly there are investors that play only in certain

parts. And when you're flirting with that lower

credit quality component B-minus into triple C, that that that starts to

change the dynamic of of who the investor base potentially is.

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

You've lived through the financial crisis, observed zero interest rate

policy, quantitative easing, the most recent inflation shock and tightening

cycle. For someone who has your

authority to go anywhere, what of those types of environments are the most

challenging to manage an income portfolio through?

Yeah, I mean I think certainly the periods of.

Volatility are going to be challenging for any strategy.

And in my career, the ones that I'll, you know, go back to certainly when

managing the convertible fund around the dot crash and then in our income

strategies both financial crises. So you know yeah, markets bottomed in

March oh nine, but September of oh eight was pretty difficult for any investor.

You know, to me, I think what's really defined our strategies and maybe become

a little bit of a you know, the focal point of of our

approach is is to continually look forward.

I mean I think the the number of investors, even if we were to bring this

more into the current you know time we spoke less than a year ago and Tara

volatility was impacting markets. I think a lot of investors have the

tendency to, you know, to sit on their hands a bit when there's this kind of

volatility playing out in markets and maybe even even the worst case would be

going to the sidelines, which we know a lot of investors did in September of oh

eight or March of oh nine and or the first week of April of last year.

Exactly. And that's where I think because we have

such a flexible mandate, our attention turns more to how can we optimize the

positioning of the portfolio. We always have assets that are

benefiting in some way, have some liquidity profile to them that lets us

focus on being playing offense a little bit more during those periods of time.

And I think that's something that has has always enabled us to kind of

recharge the portfolio. Pretty firm believer in the price you

pay matters concept, whether it's an income investment or something that's

designed to create more capital appreciation.

And that's something that, you know, really has

enabled us to kind of ultimately come out of periods of volatility and deliver

for our investors. You know, even though there might have

been some some bumps along the way. So 2022 was the first year that saw

double digit losses in both stocks and bonds since 40 years earlier in 1981,

which I recall was also a rate hiking environment, not quite as aggressive as

what we saw in 2022. I've noticed people talking about

anticipating that again and pretend preparing for it.

Is that a little overly cautious? How often do we see stocks and bonds

both down that significantly in the same years?

Is that likely to happen any time soon? Well, I think the the backdrop was was

really set for that dynamic. And what I mean by that is where rates

had had had declined to you didn't have the carry to offset negative returns in

fixed income and the resetting of where rates should have been,

you know provided that that the fuel to to drive those kind of negative toll

return. So we really think we're in that

certainly not in that position today. Never say you know can we you know don't

expect that that can never happen again, but certainly not the backdrop that

we're envisioning today. So just the rationale for why our bonds

can bonds be a diverse fire in a multi asset portfolio?

You know, I think we would have argued and if you look at our asset allocation

in 2021, we did not believe so and they certainly did not offer attractive

income for investors. So and that was good for 20 prior 20

years. They were not producing a whole lot of

income. After 2022,

yields were a lot of money. Markets were over 5% for a while.

Now we're in a rate cutting cycle. How does that affect how you look at

fixed income products? Are you looking to extend duration or

are you looking to extend credit quality?

Is there now reinvestment risk? If you're too short?

How are you thinking about this? Yeah, we've made such a significant move

into fixed income in 2022 and and 2023 that, you know, we do have that now in

the corporate space in particular, we have companies that are are engaging the

market refinancings to some of the real priced kind of investments we were able

to make at that time. You know, we are now seeing some cash

coming back into the portfolio, but way we treat that, is that just because a

dollar comes out, maybe a high yield bond is called away or matures, which

they do in fact do at times, it doesn't mean the dollar goes back into the high

yield bond market. For us, it's always going to be that net

next most attractive place that we're looking today, We might be looking, you

know, more specifically in structured equity or in convertible securities

where, you know, we think outside of the the very large mega-cap tech companies

that have driven this market since 2023, that there's pretty reasonable

valuations. So there's a lot of companies, whether

it's utilities or industrials, that I think have a pretty interesting

profile for the rest of the decade. So if we can pursue investments in their

common stock, maybe there's a 2 to 3. Percent dividend yield.

But if we can access a convertible, we can blend that yield up to something

that's more attractive for a strategy and yet still retain, you know, a pretty

interesting profile on the upside. My assumption is if something is being

called away, it's that it was too generous and now they're refinancing at

a more attractive rate. Let's talk a little bit about the

Franklin Income Fund. You're only the third lead manager of

this flagship funds. You followed Charles Johnson, who is

fairly legendary in the fixed income world.

And tell us a little bit about what it was like taking over as lead manager of

that fund. Well, first, let me mention I had a

chance to sit down with Charlie last month.

Something I try to do on a regular basis as I as I can and to still see and and

meet with him and hear the stories of of some of the history is something that I

really, really cherish and value doing. You know I think from the standpoint of

of. The the path that we've been on with

Franklin Income, you know, joining in 2002 was it was a large strategy for

Franklin at the time. It was, you know, around 8 billion in

assets under management. I think what really kind of maybe though

defined the strategy was that period coming out of the financial crisis and,

you know, navigating our way and being able to engage the broad cross-section

of markets and perform very well for five year period really helped establish

this. But at the same time, you know, we

realized that investors, financial advisors do like a range of different

strategies or the ability to use different vehicles to deliver an

investment strategy. And that was something where in 2022 we

launched Franklin Income and SMA vehicle, and in 2023 we launched

Franklin Income Strategy in an ETF. So it's been and you know, to see

that strategy get adopted in different vehicles is something that was a big

part of taking this strategy that's been so important for

Franklin Templeton as a whole to a different type of investor.

And for listeners who may not be familiar with the Franklin Income Fund,

a couple of things really struck me about at first.

Not too long ago, it celebrated its 75th anniversary in a whole lot of funds that

have been running continuously for 75 years since 1950.

And then secondly, and this amazes me, uninterrupted monthly dividends dating

back to the launch, which was, I think, 1948.

Is that right? That's unbelievable.

It is a great it's really a great story. It was part of the original custodian

funds for Franklin. And the the first four were, you know,

really the four asset classes at the time, a bond fund, a stock fund, a

preferred fund and a utility fund. And then the final series of custodian

funds was the income fund, which was meant to look at those other four

strategies for asset classes and find the most attractive income investments.

So, sure, the four food groups, that's the core and you create a whole meal out

of that. So you mentioned agency mortgage backs.

What what else do you look at that are either asset backed or clothes or any

exotic other products that theoretically generate

pretty good yield relative to the risk the investor assumes?

Yeah, I mean, I think that agency mortgages tend to be our our core

component within that part of the fixed income markets.

But we're always evaluating different opportunities, asset backed oriented

investments. And, you know, right now we're pretty

light. We do have a fair amount of corporate

debt that is secured debt. So I recall coming out of the financial

crisis. DoubleLine, as an example, had a ton of

mortgage backed and it just seemed as everybody refinanced and refinanced

their homes, the available paper just disappeared doing this off the top of my

head. But it was something like 90% mortgages

when it started and ended up at like 25 of 35% mortgages.

We've seen a significant slowdown in home sales.

Yields has been higher than it's been for the past 20 years.

So we have been seeing a lot of refinancing and or a lot of new

issuance. Is there enough mortgage backed paper

out there? What's going on in that space?

Yeah, and certainly it's been topical just the last week or so with, you know,

the Fannie and Freddie purchases is 200 billion a month or some wild number, an

additional 200 billion. But even beyond that, there could be an

extension. So, you know, we did see the mortgage

market react. We saw spreads kind of come down and,

you know, ultimately bringing longer term rates down is going to be probably

the biggest beneficiary in terms of activity within the housing market.

But do we have to get down to 5% mortgage rates to see this really kicked

up? Or where are we now six and change six

is? Yeah.

I mean, I think certainly that needs to be the direction of travel, what that

specific number needs to be to get some activity.

Probably there's some other factors as well.

Certainly the the overall health of the economy in the labor market are going to

be a major, major component of of being able to get some of that activity going

in the housing market. How closely do you track macroeconomic

news? Like

if I had to describe the labor market today, I would say it.

It's still solid, but not as strong as it was a year ago or even six months

ago. Really, since April, we've seen it kind

of soften up. We're not seeing big layoffs.

Do you? I always feel like a macro tourist when

I visit that space. Because it's not my charge to predict

labor markets. How do you integrate looking at all

these data points that seem, as you said earlier, so noisy, so hard to find the

signal in there? Yeah, there's something like the labor

market clearly is taking kind of a front seat, right?

We had the Fed really focused on fighting inflation and then as we saw

the labor market weakening, ultimately encouraged for the Fed to, you know,

begin a resumption of the interest rate cuts.

Now, you know, I think there's a kind of a reluctance in the labor market on both

sides. Right.

Is a reluctance maybe at the corporate level to hires a lot of uncertainty.

Some of that was brought on by the the onset of tariffs and just the

uncertainty around where that was going to impact businesses.

And then I think you can't ignore AI and the role that that's happening.

So there's this reluctance maybe to hire and a reluctance to fire.

So we're stuck with a little bit more stagnant component in labor market.

We're talking earlier about the fixed income portion.

Let's talk about the equity portion.

And I recall reading something you said as we were coming out of the pandemic

about the dominance then of growth stocks over value.

How has your views changed over the past five years of other than 2020 to double

digit gains in equities? Yeah, I think, you know, we've gone

through this this period since the pandemic with different cycles within

the equity markets. And certainly there was a tilt

immediately towards growth and and and value underperformed.

I think it shifted a bit. Certainly in 23 and four.

We saw it transition to a more of a market cap dominance.

And that certainly has has proceeded, I think, since the beginning of 2023,

something like the S&P 500 market cap, as has nearly double the performance of

the S&P 500 equal weight index. So, you know, we do think there's a lot

of other things kind of under that initial layer.

If you pull it back and look at the broader

equity markets, that there's a lot of opportunity across industries where

companies are benefiting from the expansion in the economy that are

benefiting from the secular dynamics that we see, whether it be in

manufacturing investment or technology investment.

Hmm. Interesting.

So we've also seen active equity management under fairly intense

competitive pressure really for for a good couple of decades.

How does that change how you look at equity selection or asset allocation?

Yeah, you know, I think, you know, from a maybe a bigger picture,

you know, the move towards more passive exposures, the flood of money into

passive investments has maybe exacerbated some of these dynamics

around, particularly the dispersion between

the the mega-cap stocks, the market weighted indices and the average stock

or the equal weighted indices. You know, I think for us, it really

becomes more about, you know, securities selection.

There's still plenty of liquidity in those other stocks.

And and to the extent that we can turn over rocks that maybe other investors

are not looking at, that are being influenced as much by the magnitude of

flows coming into passive indices is something that, you know, is a big part

of our overall allocation. But I would really go back to, you know,

this kind of view that as an income investor.

We can look for opportunities where we're not trying to identify the

catalyst next quarter or two quarters from now.

We're looking at investment with favorable fundamentals that we think

over time can deliver for investors. And that income component once again,

kind of a significant part of maybe the near-term total return.

So so let's talk about those different asset classes that you're not looking

for. Great quarter, guys.

You're looking for great decade convertibles, equity bonds, credit.

Do you play in the private space as well?

How significant is that? Tell us about all these different

multi-asset options you have. And is there an overall core philosophy

that sort of strings all of these together, keeps them all in one

philosophical bucket? Yeah, I think one of the more

interesting components, you know, of our of our strategy is, is taking a little

bit more of a holistic approach for how we invest in a company.

I mentioned before, you know, sitting down at times with company management

teams when you're approaching it from both an equity and fixed income analysis

standpoint. Well, looking across the capital

structure, it's pretty common that, you know, between a third or 40% of the

portfolio will be invested in companies where we own multiple parts of a

company's capital, meaning meaning their bonds, their equity in their

convertibles or some combination, which it is somewhat common in a multi-asset

strategy to have kind of different. Components.

And if you like the company, if you've done the research and it's income, not

just capital appreciation, why not own everything?

Do the valuations fluctuate within the same company, from corporate to equity

to convertible? Sometimes a part of their cap structure

is more appealing than others. Absolutely.

And that's something that we've really seen over the last five years, certainly

when longer term rates were a lot lower, really across the board.

There were companies where we saw equities trading in mid-teens multiples

with 3% dividend yields and the same benchmark longer term debt from those

companies yielding one and a half to 2%. Didn't make any sense.

Right? Exactly.

Well, I recall at that time we'd be very tilted to the common stock and using

other things within the equity, structured equity in particular.

But fast forward two years, rates surge higher.

Those same companies, the stocks, many cases were at the same levels or same

valuations. Yet bonds had gone from yielding 2% to

maybe yielding five, five and a half percent.

I recall a couple of the big tech companies, and I want to include

Microsoft and Apple in them in that list issued 2% long term bonds, and yet the

yield was almost that. And you had all the upside of the

equity. Like, I don't know who is enthusiastic

about that. How do you when you see a new issuance

like that 2%, what do I care about 2% or is 2% attractive in a zero rate

environment? Yeah, I think for us it's a play.

It's much harder to have that makes sense in our strategy to play a role in

the portfolio, but it's something that, you know, the more that's out there, we

may not have participated in those new issues in 2020 or 2021, but come back in

2022 when rates move and invest, suddenly they're attractive.

I don't think, you know, many investors didn't expect that investment grade

corporate bonds could drop 20 to 25 points, and they did.

So there's always a time for it. And the more of that that is issued in

the market just gives us that that opportunity down the line.

Just because it's investment grade doesn't mean it's not subject to

interest rate risk. Right.

I think that's kind of, you know, fixed income one on one.

Yeah, That was part of the you know, like I said before, the very loud

announcement that the bond market made around, it's it's returning to a more

normal functioning in 2022. So so let's talk about the flip side of

that, um, real default risk. We haven't seen a whole lot of defaults

other than a handful of very specific corporate.

It was a big fraud case recently that company in in all its fixed income in

the automotive sector crashed and burned.

But for the most part fraud default rates have been fairly low.

How do you look at at that risk and is it a sort of top down macro approach or

is it company by company balance sheet line by balance sheet line?

Yeah. I think first from a top down

standpoint, you know, we have had a nice tailwind.

We have had an economy that's been growing, we've had capital markets that

have provided solutions to companies that need to get through.

There's also been probably a fair amount of of,

you know, restructurings along the way that in prior

market cycles would have led to a higher default rate.

So I think you have to make that adjustment as well.

I think for us in our strategy, it's it's very much though, about the

fundamental analysis, the idiosyncratic risk and and working.

We want to be in situations particularly in lower credit quality companies really

understanding that that path that management has to ensure that the

company moves to a more solid footing, then that could be the debt maturity

wall or access to capital and liquidity to ultimately deal with debt as it

comes. Do How do you think about systemic risk

relative to what the central bank is doing and the Treasury Depart is doing?

Treasury Department. When we look at we had the financial

crisis, we had the pandemic, we had the flash crash, we had that little hiccup

with Silicon Valley Bank and some of the other

banks that that in reality were contained as opposed to

what we saw during the financial crisis. Do investors look at these institutions

as providing a put providing a

ready rescue plan, or is it more less about specific companies and more about

we're not going to let the system collapse?

Yeah, it's a good question. You know, I think we've been through a

lot over the last 20 years. A lot, Right.

And 100 years worth of stuff in a decade and a half.

Yeah. I think if you look at some of the

policy measures, maybe not, you know, initially out of the gate following the

financial crisis. But, you know, the long truth that some

of those policies had and the distortion ultimately that was created in markets,

I think there's a different view of maybe the appropriateness of some of the

policy today than there certainly was at the time.

You know, ultimately the fear of systemic risk does create opportunity

for us. I think being in a highly diversified

strategy, not just from an asset class standpoint, but but investing across the

range of fixed income sectors and the range of sectors within the equity

markets certainly helps lend to our Brazilians, to the strategy in the case

where markets become a little bit more concerned about systemic risks.

You know, I think one of the probably more interesting things that that is

happening today that I'm sure you've talked to other guests about is the

private credit space where we've just seen tremendous growth, tremendous

amount of capital being committed there. And ultimately it needs to be deployed.

And I think some of this doesn't have quite the same level of transparency

that it would have had if it was in the public credit markets.

So I think that's something that, you know, we're certainly close to and both

looking at potential opportunities because we can play in private assets

within our Franklin income strategies. But, you know, if there was something

that, you know, we would want to keep very much on the radar is is is what is

happening in that space in terms of credit quality that the criticism that

has come up about privates is that it's a form of volatility washing.

You're not getting marks on the regular that are market based.

It's all right we think it's worth about this.

Here's what the peers are worth. So let's sort of

ballpark this. How do you think about that?

Is that a fair criticism of that space? And, you know, the main appeal seems to

be, hey, it's non correlated, it's potentially better returns.

How do you look at the the pitch from the private credit side?

I think it's evolved in a healthy way. I think using volatility measures is

somewhat debunked. I think,

you know, leading with the Sharpe ratio when you're comparing public and private

assets is not not something investors should be focusing on.

You know, I think the you know, ultimately it has a meaningful place.

The definition of public credit can be extraordinarily private credit, sorry,

it can be extraordinarily wide. And I think as that capital has come in,

it started to look at a lot of different places, too, to ultimately have to have

its role in financial markets. So we certainly think it's it's it's a

viable asset. We just in any and really this goes kind

of across any asset when you see the kind of capital moving in to a certain

area, there's just a greater risk of maybe less disciplined things happening.

And that's something that, you know, we think could become, you know, a little

bit more apparent here as we move forward.

Really, really super interesting. So we've talked about various asset

classes. We've talked about privates versus

publics. What do you think the average income

investor yield investor doesn't understand about either the semi they

own or the mutual fund or ETF they own? A I know fixed income is not quite as

intuitive as equities. You must hear from a lot of different

clients, but what's out there amongst Main Street yield investors, I think one

of the biggest things that that we come across is there's just a natural view

that if you're an income investor, you own a certain type of stock or have a

certain type of equity exposure. And maybe that's rooted in the concept

of, you know, like utility stocks, right?

BOND like surrogates within the equity market.

That's what you must invest in as a as an income investor.

And the reality is is much broader than that.

Even in the components of the S&P 500, nearly 40% not paying a dividend or

paying a very low dividend, that's still something, whether it's through

convertible securities. Going back to that kind of earlier part

of my career or using structured equity where we can create a security that we

can own for a year or two years that can replicate that kind of profile in our

strategy. So that opens up the opportunity to own

and we do in our strategy today. Convertible like instruments in Amazon,

in Microsoft, in Meta. So we really have a much broader

cross-section in the equity markets to pursue.

Investments are really, really interesting.

Stick Sticking with dividends, the S&P 500 dividend yield under 2% way back

when it was three and a half, 4%. How do you look at dividend stocks as a

whole, how attractive they are, the valuations there?

How do you think about that group as as a source of yield?

Yeah, I think it's a group that you want to consider.

I think back to the just the profile we've had in equity markets, the

dominance of of mostly non dividend paying stocks, the mega-cap tech

companies in particular, not to say that they can't continue to be decent

investments, but there is that whole cohort that still focuses on dividends,

not just dividends, but consistent growth of dividends.

I mentioned utility companies several times.

One stock that we've actually held in the portfolio the entire time that I've

been the portfolio manager is Southern Company and what probably very few

people would would expect if you go back to 2002, since that time period,

Southern companies actually matched the return of the S&P 500.

Hmm. Really, really interesting.

We're seeing signs of the market broadening out.

Look, my favorite data point from 2025. Everybody talks about the concentration

and the Magnificent Seven outperforming. Only two of the Mag seven beat the S&P

500 last year. Amazing data point.

How are you looking at the rest of the S&P 500?

How you looking at the value sector? Can we reasonably expect to see this

broadening continue in the future? Yeah, we do think, you know, there is

some some interesting value in parts of the equity market and maybe they are

companies that have been, you know, a little bit out of the spotlight.

You know, we do have a pretty good amount of sector diversification.

So we're finding opportunities in these different areas.

It'll be health care, it'll be industrials, energy, utilities, even in

materials. Some of these these trends, let's take

globalization and really this move that is still evolving into maybe hemisphere

controls and near shoring of supply chain, some things that came out of the

pandemic. You know, all of that has pretty

significant implications. So finding companies that have that a

play on a select theme that you want, that you identify and want to play, we

think there's a lot of that opportunity in the equity market.

I've been mostly thinking about and talking about U.S.

equities. Last year was the first year where MSCI

developed and even emerging market, just wherever you looked overseas, thumped

the U.S. and the U.S.

was, you know, up almost 18%. Nasdaq up a little over 20%.

How do you look at the rest of the world when it comes to either fixed income or

equities? You know, I certainly think that made a

great storyline for 2025. Reason being, you know, if we go back

and look at 23 and 24, though, U.S. stocks have outperformed so massively so

or the past 15 years or so, at some level, we do think it was primed for a

little bit of a reallocation towards non-U.S.

markets. And then you add on some of the policy

dynamics around tariffs and and the dollar dropping almost 10%.

Exactly. And that really led to some of that

reallocation. A lot of the outperformance of non-U.S.

equity markets in 25 did happen during that period of time.

So if you were to take a look at more of the second half, a little bit more

balanced between the markets. And then our last question before we get

to my favorite questions, I ask all my guests, What do you think investors and

traders are not talking about thinking about that perhaps they should be in and

you could be your go anywhere investor So you go anywhere with this.

What what assets, geography, policies, data points are getting overlooked but

shouldn't. Yeah, I think we really keep coming back

to right now we really feel like policy's paramount.

So really focusing on where policy will will ultimately take the market.

Midterm elections are going to continue to be a very significant overhang.

And in markets, maybe one of the things that concerns me that investors are not

talking about is if we were to think about the level of uncertainty that some

of these dynamics naturally create and how that right now really does not

translate to the kind of expected volatility that might be there in

markets. So just looking this morning at

something like the VIX and the VIX index, which a lot of investors will go

to when they want to see implied volatility back to the levels it was at

in February of 2025. So we did see a very, very low rise.

And that tends to be, you know, a point where, you know, we want to be a little

bit more cautious when naturally there is not a lot of volatility expected to

be coming in markets. You know, for us, that means we can stay

invested. We can focus on areas that deliver

attractive income and and really maintaining that nimbleness in the

portfolio. And the strategy that we have really,

really interesting it let's let's jump to my favorite questions that I ask all

of my guests, starting with. Tell us about your mentors who helped

shape your career. Yeah, I'd certainly first and foremost

on that list is is Charles Johnson joining Charlie in 2002 as a member of

the Franklin Income Portfolio Management Team and really being able to understand

his approach to investing and and hearing the tremendous, you know,

experiences that he had over time. But I think more importantly, him really

enabling me to become a bit of the investor that I am today.

And and as we went through that that transition and and then went through

difficult times, particularly the financial crisis, that awareness that,

look, we're not going to get every situation right.

We're not going to make every perfect investment.

But really how you handle it and how you stay focused on the people that have

entrusted their their money to us is just paramount importance.

And, you know, one of the first things that Charlie asked me to to do in 2002

was a difficult time. Interest rates were coming down.

There was a modest dividend cut for Franklin Income Fund, which is not a

very common occurrence, certainly not something that we enjoy doing and

getting a handwritten letter from an investor, a woman in Tennessee that was

a little concerned that her dividend check had gone down.

And here he is, the chairman and CEO of Franklin and a portfolio manager still.

And he gave me that handwritten note from the investor and asked me to

respond directly to really? And that was just did you write a letter

or did you pick up the phone? No, we wrote a letter.

And and that was something I don't recall having the phone number, but we

did write a letter and really kind of laid it out and tried to help her

understand just the dynamic. But to me, that really resonated that,

wow, this is so important to to him. This is really we need to stay connected

to just the role we are playing in individuals lives.

And I think that's something that I've really tried to not only carry on in my

career, but certainly instill in the broader team that helps manage Franklin

income. Easy to lose sight of that right.

So so let's talk about books. What are some of your favorites?

What are you reading right now? Well, I'll start with maybe what I'm

reading right now. And this is something I've always

enjoyed history and geography.

The end of last year, I picked up a place called Yellowstone

because I was planning a siblings trip to Yellowstone.

And it was just really fascinating the history I'm now reading Undaunted

Courage by Samuel Ambrose, which is more of the the Lewis and Clark expedition.

So maybe this summer I'll be out in Glacier or in the Bitterroot Mountains

on a trail somewhere. But I really enjoy, you know, reading

some I'm more of a non-fiction, you know, kind of guy.

Occasionally I'll pick up something else.

Probably my my favorite of all time is the Hemingway classic for Whom the Bell

Tolls, where, you know, you're reading something that plays out over 72 or so

hours and just something like that that really can let

your mind kind of go and the imagination take hold is always something that

I've enjoyed too. I did just pick up a new copy.

I think it's probably something that as as an American we should all read.

And certainly Walter Isaacson is not somebody that that needs a plug of any

of any sort. He wrote more of a pamphlet called The

Greatest Sentence Ever Written. And that's really the thing that I think

with America today is his books are giant.

I think this is around 50 pages. So it's it's the greatest sentence ever

written. And I haven't gone through it yet, but

I've heard him speak about it. And it's just very inspiring.

And like I said, it's it's something that the second sentence of the

Declaration of Independence with America 250 is maybe something that we should

all step back and make sure we read this year I have for Whom the Bell Tolls on

on my list. And I just read on vacation last month

the sun also rises, but nothing beats the old man in the sea.

That book just always speaks to me, not just as a fisherman, but his prose is

just so compact and tight and powerful. Really very impressive.

You mentioned Yellowstone, so I have to ask, what is streaming these days with

what's keeping you entertained? I haven't started land.

MAN two yet, but that's. Probably next.

You know, I really kind of like to. And maybe there is a sci fi element

growing up. My my sci fi of choice would probably

something like Stargate SG one or something where you can really detach.

And I think that's an important component.

Let the mind rest and be transported a little bit.

Let's let's jump to our final two questions.

What sort of advice would you give to a recent college grad interested in a

career in fixed income portfolio management or just investing?

In a way, it would be just that. I see far too many

college students, recent grads that think they've already decided what they

want to specialize in early Yes. Or are having a definitive I need to

find the job in this and I just reflect on my own path that

it evolves quickly. Get in a seat somewhere in an industry

that you think is interesting and see where it takes you.

And don't be afraid to put your hand up when opportunities arise.

Just it's it's you have plenty of time. You have nothing but time.

Don't assume that first gig is where you're going to spend the next 40 years

of your career. Is that your advice?

You know it can happen. It certainly can.

And our final question, What do you know about the world of investing today?

You wish you knew 30 plus years ago when you were first getting started?

Oh, it's such a good question. I mean, a lot of ways, you know, you

almost wouldn't want things to be to be entirely different.

You know, I was fortunate in that I found that role relatively early on that

really solidified the kind of investor I think I am.

What is that inherent DNA that I have as an investor?

So I think the sooner you can kind of tap into that and then explore ways to

follow your investing based upon that, don't try to be somebody that you're

not, you know, and I have colleagues that manage pure growth funds that

follow momentum strategies, and I think they do a phenomenal job.

I also very much know that's not a job that I would have ever excelled at.

What's the old joke? Wall Street is an expensive place to

figure out who you are. Absolutely.

Ed, thank you so much for being so generous with your time.

This this has been really quite fascinating.

We have been speaking with Ed Burks. He's CIO, a Franklin Income Fund, as

well as member of the executive committee and PM for a number of

different funds. If you enjoy this conversation, check

out any of the 600 we've done over the prior 12 years.

You can find those at Bloomberg, iTunes, Spotify, YouTube, wherever you get your

favorite podcasts. That I would be remiss if I didn't thank

our crack team that helps put these conversations together each week.

I'm Barry Ritholtz. You've been listening to Bloomberg's

Masters in Business.