Bond returns less likely to be influenced by duration

0:12Hello and welcome to the latest edition of the FTadvisor podcast. Today we are discussing the outlook and opportunities within fixed income. I'm David Thorpe, Senior Investment Editor at FT Advisor and joining me today are Ryan Meyerborg, Fixed Income Fund Manager at Brown Advisory, Mohamed Kazmi, Fixed Income Strategist at UBP and George Fox, part of the Merlin Multi Manager Funds Team at Jupiter. Good morning all and thank you for joining. George, if we start with you. How is the present volatility in government bond markets impacting how you think about your wider fixed income portfolio right now?

0:55Thanks for that, David. Yeah, I mean, I guess a lot of the volatility has been sort of concentrated, particularly at the longer end. And over the last couple of years, I'd say there's been sort of two key factors in making that the case. The first, of course, the return of inflation and the stickiness of that, and of course, the effect that has on nominal bonds and the value of them. But then, of course, the second being the fact that I guess this is more within the context of a multi-asset portfolio. We sort of relied on longer duration assets providing negative correlations and therefore sort of dampening the returns for our end investors.

1:40If long-duration bonds are potentially no longer going to play that role, and of course we've seen more positive correlations between equities and bonds over the last sort of 12 to 18 months, then there's a question mark as to whether it's in there as a diversifier to the extent that it potentially was before. As a result of that, in terms of what we did in our portfolios, we moved away from longer duration assets probably sort of mid 2023 and moved more towards actually high yield credit which at the time was sort of yielding I guess around sort of 10 percent or so looking quite attractive and even now you know the bond managers that we're investing with are yielding around about eight percent which in terms of the inflation picture provides you with with quite a healthy return to potentially deal with say the ravages of inflation if that's something we're going to face going forwards um and then in terms of of the sort of longer duration size it has started to look more attractive you know gilt yields in the uk at sort of five and a half percent something that we're certainly taking a look at um but we're yet to sort of pull the trigger on that um because you know of essentially the fiscal position um across the world so countries that seem to be in control of their fiscal spending don't have much of a willingness to actually reel it in so looking at the US, we've seen the one big, beautiful bill, of course, come in.

3:03And the coffers are still very much open for business. And then there are other nations such as the UK, which seems to be slightly out of control of its fiscal spending. And there doesn't seem, again, to be a willingness there to make some quite difficult decisions to get things back on track. So yeah, for the time being, more positioned towards the credit side of things and looking with interest at longer duration assets. Thank you for that. Mo from UBP, as George alluded to, the long end has borne the brunt of the pain. Is it a place where you're seeing opportunities or is it a question of hide out with the short end, clip the coupon and just wait and see what happens?

3:46No, I think there definitely are opportunities that are beginning to present themselves. I think going back to the initial question, volatility is great for fixed income managers because we can really actively manage our portfolios and take advantage of some of the volatility that we've been seeing. Clearly, we've seen a significant steepening of the yield curve. Yes, there are fiscal concerns, but what we've also seen are policymakers react to those concerns as well. So every time we get towards that 5 % level in the US 30-year, for example, we're now hearing from the Treasury about the active Treasury issuance focused on the front end.

4:21It's very likely that central banks will be ending quantitative tightening quite soon. If you think about the size of central bank balance sheets, they doubled basically from 20 % prior to the pandemic to 40%, and we're almost back at 20%. So actually, the technicals are beginning to improve. And actually, if you think about UK gilt, which is giving you 5.5%, yes, there's volatility. But if we think prior to the pandemic, you are probably having to go to high yield to get those sorts of levels of yield, right? And within high yield, you're willing to accept some volatility. So yes, there is going to be volatility that continues, but you are being compensated for it to some extent.

5:00And at the same time, I think we've seen clear progress that's been made. So on the inflation front, if you think about US core inflation, within services, you're not seeing any spillovers from the tariffs. What that means that the Fed is able to recommence its easing cycle. We've seen that. So we've actually moved towards a world where we think you can hold more balanced portfolios. So yes, you want to be overweight credit. There are areas of opportunities. Higher income credit makes a lot of sense. But over the past year, we've been balancing that out with interest rate duration. Because if we do get moments of spread widening, that duration will be protecting you.

5:37So yes, there's volatility. But I think you want to be looking to really fade those moments of spread widening and probably rate selling off, given that we are having an easing bias from the central banks. Thank you for that. Ryan from Brown Advisory, do you enjoy the volatility as much as Mo obviously does? Is that what you enjoy? Is that trying up opportunities for you? Yeah, I share the view that Mo has on volatility. I think as an active manager, volatility is a good thing. You want to be able to take advantage of dislocations in pricing, overreactions that we tend to see. And I think to most point, the volatility is mostly been concentrated in rates.

6:17Your credit's been very, very resilient and spreads are pretty sort of stable, if not expensive. I'm sure we'll get into that topic. And so for us, as we think about the rate side of the picture, you know, curve steepening has been a core view of ours, you know, with inflation running sort of above target in a number of different countries. at the same time you're seeing central banks easing, which has pinned the front end, if not brought it lower, in a number of different parts of the world. And so there's a geographic component to that as well. I think what we're seeing, and this is unlike sort of the world that we lived in post-GFC, where economic cycles and fiscal cycles are quite asynchronized.

6:52And so you are finding opportunities to be much more dynamic in portfolios to take advantage of some of these opportunities with that volatility that we've seen across markets. And so one of the challenges, I think, is that when we think about the credit side, the income component is very, very attractive but it is expensive and so we're refining more tactical opportunities in fixed income really focusing on the rate side which has been quite helpful for our portfolios as years have gone on Thank you and Ryan if we stay with you for the next question I mean you alluded to it credit spreads have remained tight particularly high yield spreads if you were designing the economic and market conditions for high yield to do poorly you might have designed the start of 2024 People are expecting a recession.

7:36Inflation was still there. There was some uncertainty about the monetary policy environment. But yet, high-yield spreads remain tight slash expensive, as you alluded to. But what does your high-yield exposure look like right now? I would say that we are cautious on credit. I think what George has said and Mo has said is that there's definitely opportunities within the credit space to allocate to the asset class. Our view though is generally as you look sort of around the world, the economic picture isn't that rosy. Fiscal has been helpful. We're seeing a lot more fiscal spending in Europe, for example.

8:13The US is doing fiscal spending again, so it feels like the taps are wide open. But on an aggregate basis, when you look at IG spreads and high yield spreads around the world, they're pretty rich. And so for us, we're happy to own credit in our portfolios, but we want to be very thoughtful about where we take credit exposure. So specific sectors, European financials, for example, more anti-cyclical types of sectors in the U.S. as well. We tend to be more biased at the moment towards IG. We're finding opportunities in high yield, but I think what we saw in April, which was a very good reminder, is that there's pretty significant gap risk in credit.

8:49With the liberation day or whatever you want to term, you know, beginning of April, there was a big gap wider in spreads. You know, it was an opportunity for us to try to reallocate to names that we've liked, but would have just been waiting for the right entry level. You know, we feel like we're getting, being paid appropriately for the risk that we're taking. You know, we've come all the way back now to levels where, you know, we started the year, if not inside of that. And so our argument is, you know, one has to be pretty cautious about how much credit you have in types of portfolios that we run, you know, that are unconstrained, go anywhere.

9:18It feels like the alpha generation for us is probably much more concentrated in currencies and in interest rates. But at the same time, you have this ballast from credit because balance sheets for companies are pretty solid. I think companies did a lot of smart moves during COVID to refinance their debt. Farming out. Yeah, and so we don't see grave concerns. But I think April was just a good reminder that things do feel a bit priced to perfection. As equity markets have gone up, credit's been very resilient. Volatility has been very low, and that's not a bad thing at all. we just are thinking about trying to be a little bit more cautious about where we allocate to the credit markets by geography, we like Europe a bit more than the US and in certain sectors as well.

9:59Thank you for that. And Mohawk, if everything's priced to perfection, is one of the places that you find interesting right now, high yield? Yeah, if I think about how we're building our strategic income portfolio, for example, we're looking at areas of credit where you're getting a bit of a premium, but you're not necessarily taking all of the default rate risk, right? If you think about BB bonds, for example, you still get a nice premium versus BBBs, but historically BBBs don't default. If you think about the 81 market, if you think about CLOs, all of these areas of the market, you're getting a bit of a premium, clearly above investment grade, without taking all of that cyclical risk.

10:38So I think that's really how we like to focus our credit exposure. But even within high yield, people say spreads are tight, but they often look at spreads over a 10-year horizon. And we also need to remember that the quality of high yield has improved quite significantly over the past 10 years. Over 50 % of US high yield is double B bonds, 60 % of Europe, and as I said, double B bonds don't default. So what you're seeing is spreads are tight, but default rates are very low. And the other reason default rates are probably low is because nominal growth is very high. And we need to remember that a bit of inflation is actually a positive from a company perspective because if nominal growth is high, Nominal revenues are high.

11:16And really, if you look at default cycles historically, what's really driven a large spike in defaults has been a collapse in nominal growth. And I'd be on the other side of that trade. We think that we're in an environment where nominal growth is set to remain elevated, say 4 % to 6 % in the US. You have sticky inflation, but you also have central banks who are now focused on maintaining high nominal growth. Why? Because of financial stability. It goes back to the volatility question. If you have high nominal growth, it's probably the only way you can improve the debt levels from here. So I think it's about speaking to investors about us moving to a new regime of high nominal growth.

11:56In this environment, interest rates will remain volatile, but actually spread volatility could actually be a lot lower because in a high nominal growth environment, the default rate cycle is likely to remain fairly contained, we believe. Thank you, Mo. And George, given the tightness of spreads, what signal is that sending to investors in a climate where inflation may be higher for longer and rate cut expectations have moderated? Well, I mean, sort of agreed with what's been sort of said so far. I mean, trying to maybe look at things at a slightly different angle. One of the arguments out in the market is that actually there may be an element of sort of artificial suppression of credit spreads.

12:37So a sort of common narrative is that given credit spreads are, of course, a relative measure relative to, of course, the yield that you have on a risk-free asset. Is the market, are investors potentially asking questions about the relative attraction of corporate, say, versus sovereigns? So over the last sort of 15 years since the financial crisis, you've seen corporates go through quite a big deleveraging cycle, whereas, of course, sovereigns have taken on more and more debt. And as we've sort of said before, potentially not looking at slowing that down for the time being. So, you know, there is a narrative out there that sort of asks whether the reason why people are more willing to lend to corporates or the fact that they are more willing to lend to corporates is suppressing that credit spread.

13:28And as a result, maybe, you know, they are slightly artificially tighter than they might actually be. but is that when you say artificially is that are you saying that in a with with with a negative lens or a positive lens or neutral lens i'd say i mean again this is this is a narrative out in the market not necessarily one that we feel strongly in or believe strongly in sorry but but in a positive light in the sense that if you've got your credit spread of course being on top of a government bond yield that government bond yield being elevated because there are concerns on the fiscal side of things that is then therefore suppressing that credit spread um potentially yes i mean i think we're always very cautious about arguments um of sort of in the ilk of this time is different you know credit spreads tend to be mean reversing over time we are at tight levels we're likely to go to a looser point you know maybe not in the too distant future um but clearly there's there's a lot of sort of uncertainty out there um both on the positive and the negative side.

14:31In terms of where we're allocated, in the high yield managers that we have, they're very short duration. So they're looking to, you know, get yield, but in a sort of, in a way that you have a very concentrated, or I guess there's not a particularly big spread of outcomes that could potentially happen to those bonds. They have a high element of certainty that those are going to be paid back to them. And so you can get yields whilst not taking on a huge amount of risk and you know now sort of saying similar things to the answers that have previously been given thank you george and um we'll we'll start with you for this question um and it's something that maybe brings together a couple of the other questions duration risk has dominated both well certainly relative performance for bond funds in recent years uh is that likely to be the most significant determinant of performance going forward or could could other factors become more relevant?

15:28Yeah, no, I think duration risk has always been crucial. The one positive is that the tail risks have been significantly reduced, I would say, from a duration perspective. If we're talking at the beginning of last year, there was still a lot of uncertainty around the Fed cycle. Would the next move be a hike? Would the next move be a rate card? And when would it be? Now we know that the direction is quite clear. But to be honest, our message for our clients has been pretty similar over the past couple of years. It's been one where the all-in yields in the higher income segments of the market are very attractive.

16:02You're talking high single digits. So what really matters is time in the market rather than trying to really time the market. I think that's really the major difference in this carry environment because everyone's, you know, we've all talked about spreads and if spreads were to widen from here, why would they widen? It's probably because growth is surprising to the downside. But at the same time, what would happen in a downside growth scenario is that you'd be having the Fed coming in and easing policy. And that would likely cap, we think, how fast spreads can widen. So it's about focusing on the all-in yield.

16:34Whilst we wait for spreads to widen, you're benefiting from that carry component. And then if spreads do widen somewhat, the Fed will be cutting rates, probably through neutral. And then you might get some capital gains from that perspective as well. So our message is fairly similar to what we've had over the past couple of years. And actually, if you think about high yield historically, everyone views it as a spread product. But in reality, when you look at the performance of high yield over the past 30 years, the majority of returns have actually come from the income that's generated from the treasury component.

17:05And we are in an environment where income has returned. And with the tail risks of a rate hike having been reduced, we think one can really focus on just being allocated to some of these more interesting carrier opportunities. Thank you for that. Ryan, how has duration exposure treated your funds in recent years? And has it still got to be front of mind as a fixed income manager going forward? Well, I agree with Mo. I think duration is always critical to managing bond portfolios. And I think what's been really interesting is that we've really exited a market paradigm and entered a new one. Think about the 10 plus years post to GFC.

17:51We lived in a world where volatility was incredibly low. Rates went to zero around the world. Spreads were tight. And then we went into 2022 where all of us as managers have had to deal with inflation running at double-digit levels in parts of the world. Just this very sharp reminder that inflation does exist. And it's important, especially as a bond manager. I mean, inflation is the single most important thing that we have to think about. And so duration management over the last three or four years has been critical for delivering on what investors ask for in fixed income, which is actually quite an asymmetric return profile.

18:24You want the upside capture when things are going well with high yield and all these different asset classes, but it's very important for fixed income to deliver capital preservation and challenging markets to deliver the negative correlations to equities as, as George talked about, which is hard to do when inflation is running at eight, nine, 10%. Everything's positively correlated. So that duration component is, is incredibly important. I think it will be incredibly important going forward as well. So being dynamic, recognizing that in this new market paradigm, inflation does exist. George and Mo both mentioned about fiscal profligacy that we've seen around the world.

18:57That's not going to end, whether it's France, whether it's the UK, the US, the same thing. And so that duration component, the volatility of duration, as active managers, we have to be very, very thoughtful around it. And I do think there will be an opportunity with that volatility to maybe see an opportunity to see spread widening, to take advantage of trying to dip into attractive companies at good levels. it's not necessarily in our perspective really just a broad brush allocation one can say I want to own a certain percentage of high yield in my portfolio or IG but it's what companies am I owning to most point double B's perhaps or really good companies that are unfairly tarnished by a broader widening in spread so that duration component will be the absolute singular focus for us I think going forward but at the same time taking advantage of some of the spread opportunities that arise from that as well George on that point is duration something that you have to spend a lot of time on or is it easier to just on short duration things clip the coupon and do that for infinity yeah i mean duration i think as i sort of mentioned in in the first question is is a lever that we've previously used but but more recently haven't as much um we've been more focused like you say on on the shorter end of things um i guess as well as is whether you think about duration in in absolute or relative terms you know in as a return driver so in absolute terms obviously you've got credit spreads as another potentially currencies as well potentially you know inflation or sort of inflation linked bonds could be a further one but in relative terms I guess it depends on the underlying managers that you're allocated to we've actually moved more away from fund managers that are more macro focused and actually focused more on managers who have a higher degree of credit selection driving their returns.

20:49And so for them, ultimately, through the cycle, duration is not going to be as big a driver of the underlying return profile that they deliver to us. I guess then it comes to us to then think about where the duration needs to be on the portfolio. And we have a greater degree of control over that because we broadly know where our managers are going to be. Whereas previously using, I guess, more unconstrained, more go anywhere funds, it's more difficult to have a handle on that. In terms of where we're positioned at the minute, yes, we're still at that shorter duration. But I wouldn't say particularly so.

21:24We do have some sort of IG funds in there that a duration of around sort of five to six years and then a couple of smaller positions that might be a little bit higher. But it's certainly something that we continue to consider actively on an ongoing basis. Thank you for that, George. and Mo, if we come to you next, I guess the nature of UBP's business is that you've got clients in different jurisdictions and how relevant is currency risk to fixed income returns in the current climate? I mean, obviously I'm thinking about if you own treasuries for a UK-based client and then the dollar weakens, that weakens around return, right?

22:06How relevant is that more broadly for you? Yeah, no, I think it's definitely clearly relevant from a client perspective, given their exposures over the past few years, benefiting from the move higher in US assets and the move stronger in the US dollar. In reality, when we build our portfolios, it has less of an impact because we view our portfolios on a hedge basis. So when we look at our portfolio construction, we're looking at the credit risk separately. We're looking at the interest rate risk separately, all hedge back to the base currencies of the funds, say dollars. and then we look at the FX risk separately.

22:41If we want to hold an FX bet today, then we would hold that separately. I think when you start talking about significant unhedged risk within a fixed income portfolio, the risk is that the volatility on the FX side can be so large that it can really eat into your returns. So where do we see value in FX today? Within strategic income, we're really focused on holding some of the EM local currency bonds with the FX risk. So we're talking about Brazil, we're talking about Mexico. I think the first point is that you're getting almost double-digit returns in real rate terms. And you've clearly had this trend of a weaker dollar, which is also providing support for their currencies as well.

23:21So I'd say that's how we're managing currency risk within the portfolio, perhaps having less of an impact to this trend that you've clearly seen of higher euro dollar. And in the end, when you think about the FX hedging costs between US and the UK, for example, is pretty much flat so you're not necessarily missing out as a UK investor even when you take those hedged returns on. Thank you and George from Merlin's point of view, Jupiter Merlin's point of view, do you just hedge everything out and not think about currency or can currency be a source of opportunity? It can certainly be a source of opportunity but yeah I mean I'm sort of tapping into what Mo touched on there.

24:05I mean, for us and for our clients, we're looking to use bonds as a sort of lower volatility instrument. And of course, layering currency risk on top of that potentially takes away that benefit of that asset class. So yeah, currency is not something that we use particularly on the bond side as much. Everything is sort of hedged back to the currency of the fund. I mean, I guess, again, it comes back to what you see as your investment edge. I think every investor, all three of us in the room, work for teams who probably have five or six things that they believe they can really add value on. They may be different for each manager, but for us, currency is just not one of those things.

24:46We think they are pretty complicated things to get your head around. There's a huge amount of factors that play into it. I guess if you were a single strategy manager, you might have a better idea of maybe the impact of, say currency on a particular instrument on a particular company um but for us at the multi asset level this is something we generally steer clear of thank you ryan you're the single strategy manager uh around the table um how is currency something that you you look at at the instrument level or at the portfolio level uh and is it a source of opportunity or threat to returns well i think it's both an opportunity and a threat and i i share with with mo that when you think about the risk return of fixed income investments, when you layer in the currency factor, currencies can dominate the risk return profile of portfolios.

25:36And so I think you need to be very thoughtful about taking currency risk because it can really sort of overwhelm the fixed income characteristics of your portfolio. And our investors look to us to deliver fixed income type returns. That being said, this is a very interesting opportunity set for us as managers in this environment. We went through a multi-year dollar upswing cycle and, you know, for investors overseas, the U S whether it was in the equity markets, fixed income markets was incredibly attractive, not just because the markets are growing up because you also could layer in the currency component as well.

26:12Now this year has been completely different. You know, post liberation day concerns about, you know, what's going on in the U S in the context of fiscal policy, uncertainty around, you know, trade policy, et cetera, has put the dollar on a significant downtrend this year. You know, double digit sort of drawdowns in dollar across a number of different currencies. That's an opportunity for us. You know, we think about, you know, the investments we make in, you know, overseas bonds. If you're a dollar investor, say in Australia or Brazil or Canada or in Italy, you know, there's the bond component, but the FX component as well.

26:46So for us, you know, we've had a longstanding view that the dollar would be weaker. And so we've been running a significant dollar short in the portfolio. and that's been a huge, you know, it's been very accretive to our portfolio returns. I think what's been very interesting in that conversation around the U.S. dollar is that we spent a lot of time overseas speaking to investors, whether in Asia, Middle East, Canada, you know, around Europe, and all the investors have said the same thing, which is, you know, we have been very successful in our allocation to the U.S. markets over the last couple of years.

27:19We want to get closer to home, so there's been some selling of U.S. assets. But what we're most concerned about is this drawdown of the dollar. And so we're hedging our exposure to the U.S. dollar quite significantly. I think it's very early innings for that. I still think there's a lot more hedging that can happen overseas to try to limit that dollar risk. And in a way, it kind of snowballs. As more investors hedge dollar risk, the dollar goes down, and more investors are losing money on that dollar exposure, so it continues to happen. So our view is that this is very sort of early innings for that.

27:48and so we can deliver fixed income returns from our bond holdings we can also augment that with our currency view and that we have a very high conviction view that the dollar should go down so it is an opportunity set for us but most of the time you don't have these big swings in currencies it's much more relative value and that can be alpha generative but it's not you know that won't be the biggest driver of returns but when you do get these you know once every five to seven year swings up and down the dollar you need to be able to take advantage of that thank you for that ryan and a nice easy question to finish off with for you.

28:20Do you expect the bulk of returns from your fixed income portfolios to come from the coupon or from capital appreciation over the next year or so? I'll give you a bit of a hedged answer on this. I actually think it'll be pretty close. You know, I think as bond managers, all of us want, the most comfortable place to be is when the market is relatively placid and you can just capture returns from coupon, from income, you know, because there's not a lot of volatility on more credit spread and that's a very comfortable place to be. I think there's a lot of value in that. Mo made a very good point that there's income and fixed income again.

28:52And so we can get, even in just treasuries or gilts, getting 4.5%, 5%. That's a comfortable place to be. And then you layer in credits, but on top of that. Our view is that we're going to see a significant Fed easing cycle here. One, because the labor market is weakening, but two, because the Fed composition is shifting. It's going to become a much more structurally dovish Fed, just given that J-PAL won't be in the seat. by this time next year. And the new Fed governors that will come in are probably much more aligned with what the current administration wants, which is easier monetary policy.

29:25And so I think as you start to see rates in the US go down, I think the UK will follow it slowly, but you'll see rate cuts from the Bank of England as the year goes on and into next year. And easing around the rest of the world, there will be capital appreciation from that. So I think it's a bit balanced. I think there'll be very healthy income coming from fixed income. But at the same time, I think because you'll see rate cuts coming in major developed economies, especially the U.S., there'll be a capital appreciation component as well. So my guess is that over the next 12 months, it'll be pretty evenly balanced between the two.

29:57Thank you, Ryan. And Mo, for your clients, are you thinking about this as there's income and fixed income again? we'll just clip the coupon on that and volatility and risk and capital appreciation can come from the equity side of the house or is there a capital appreciation story in your fixed income exposure? No I think it's very similar to the points just made in terms of it's going to be a bit of both right I think the number one point of interest is the carry component and the fact that this isn't 22 because I think a lot of clients were burnt during 2022 when you had the rate sell-off you didn't have that protection from fixed income.

30:41And the starting point from a yield perspective was very low. Today you have elevated all-in yields, you have central banks who are on your side. So it's really about talking to clients about locking in those yields. Because if the Fed does shift more dovishly over time, if you look at the flows you've seen in money market funds, for example, over the past few years, that's where all the cash is still sitting because those yields are still elevated. But the Fed funds rate is still well above neutral, right? There's uncertainty about the timing, the magnitude of when they go, but we know they're going to be cutting rates.

31:15So it's about locking in the attractive yields that we have today. And then at some point, similarly, we do expect the Fed to continue its easing cycle, at least towards neutral. But the beauty of the neutral rate is that no one really knows where it is. So whether it's at 3.5 % or 2.5%, that's something we're going to figure out over time. And clients can really take advantage of that by being invested today. And they can take some comfort from the fact that they have the Fed on their side. I think that's a key differentiator to where we were in 2022. It's really explaining to clients that you have that support that's coming from the central banks, both from the front end on the easing.

31:53As I said, even at the long end, yes, there'll be volatility, but quantitative tightening should be coming towards its end, which can provide a bit more of a positive technical. What it means for us that we need to make sure we're invested in duration as well. So a couple of years ago, we were building almost barbell portfolios, overweight credit, very defensive on interest rate duration. In our income funds, holding almost zero years of interest rate duration. Today, we're holding more like towards six years of interest rate duration, so more balanced portfolios, so you can actually capture some of those gains on the upside.

32:25Thank you for that. And George, obviously, Merlin, as our listeners will be familiar with, our fund of funds and have different risk profiles and income is one of the strategies. And when you're putting those together, do you think about the carry versus capital appreciation consideration differently in each fund depending on risk tolerance or income priority? Yeah, no, it's a good question. I mean, it does, as you said, depend on where you are in terms of our sort of, I guess, risk rating spectrum towards the lower end of our portfolios. They have to hold a certain amount in investment grade.

33:06So naturally, they are generally higher duration, whereas the more equity-focused portfolios have a lower lead or no need to hold particular areas or fixed income markets. And so they may be sort of lower on the duration spectrum. I mean, of course, whether it's going to be a year for capital appreciation or the coupon depends on where you're positioned within the fixed income market you know for us being more positioned towards high yield and to an extent in corporates the coupon is is going to be a big part of that um you know we've spoken about credit spreads being tight so there's not a huge amount more room for for that to get any tighter of course there still is a little bit um but but not a huge amount and so the coupon is going to play a much bigger role within that element.

33:54If we did decide to move towards longer duration areas and use sort of rates as a bigger return driver, then that, of course, could have effect on our end portfolios. But for the time being, it's certainly more clipping the coupon where we're positioned. Of course, as ever, we reserve the right to change our minds. So if we do see a change in market dynamics, then it's something that running highly liquid portfolios means we can make changes quite quickly. Thank you for that, George Fox, part of the Merlin Multi-Manager Funds team at Jupiter. And thank you to Orion Meyerberg, Fixed Income Fund Manager at Brown Advisory, and Mohamed Kazmi, Fixed Income Strategist at UBP.

34:35And thank you all for listening. Please do remember to tune in to future editions of the FT Advisor podcast. Thank you.

34:52Thank you.