Franklin Templeton's Ed Perks on Fixed Income Investing

18:28Barry Ritholtz:Coming up, we continue our conversation with Ed Perks, Chief Investment Officer of Franklin Income Investors and President of Franklin Advisors, discussing the broader fixed income environment. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

19:14Barry Ritholtz:We'll see you next time.

19:45Barry Ritholtz:We'll be right back. registered advisor. Generated assets is an interactive analysis tool. Output is for informational purposes only and is not an investment recommendation or advice. Complete disclosures available at public.com slash disclosures. There's no championship league for small business owners, but if there was, you'd be at the top of the standings because going pro with Lenovo Pro means you've got the winning formation. One-on-one advice, IT solutions, and customized hardware powered by Intel Core Ultra processors help you stay ahead of the competition. Business goes pro with Lenovo Pro.

20:17Barry Ritholtz:Sign up for free at Lenovo.com slash pro. Lenovo, Lenovo. You ever wonder how far an EV can take you on one charge? Well, most people drive about 40 miles a day, which means you can do all daily stuff no problem. Go to work, grab the kids at school, get the groceries, and still have enough charge to visit your in-laws in the next county. But they don't need to know that. And the best part, you won't have to buy gas at all. The way forward is electric.

20:50Ed Perks:Explore EVs that fit your life at electricforall.org.

20:57Barry Ritholtz:I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Ed Perks. He is CIO for Franklin Templeton Income Investors. He is also has been PM of a number of their fixed income and hybrid funds, including their flagship Franklin Income Fund, which he became lead PM. I want to say 2002. Is that right?

21:24Ed Perks:Joined the PMT in 2002 and lead in 2004.

21:28Barry Ritholtz:2004. All right. Not not too much. That's 20 plus years. So so let's talk a little bit about what's going on in fixed income. A lot of cross currents. Here's 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 could go anywhere. So what what do you like these days?

21:59Ed Perks:Yeah, you know, I would say in fixed income, we are really pretty diversified across the range. And for us, that is U.S. Treasuries, it's agency mortgage-backed securities, it's investment-grade corporate bonds and high-yield corporate bonds. And we have different factors there. One, we do think the carrier, the income component of fixed income is quite attractive again today. And like I said before, it's been a while since that was the case or there was a long period of time where that was certainly not a function, not a benefit that investors in fixed income had. So spreads on the corporate side do concern us a little bit, but at the same time, we have seen extended periods of time historically where spreads have stayed on the tighter side near historical lows.

22:48Ed Perks:So our view is that you want to be diversified, look a little bit more at idiosyncratic risk. So sometimes in our strategy, we do think the biggest lever that we have moving from one asset class to another is the most appropriate. We certainly had that 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 risks. 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.

23:30Barry Ritholtz:I noticed you didn't mention TIPS, Treasury Inflation Protected Securities. Is that something that at the current level of inflation and the current yield there, is that attractive?

23:41Ed Perks:Yeah, it's not something that we're focused on today. I think to the extent that we see inflation continue 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 surprise to the upside.

23:57Barry Ritholtz:And let's talk a little bit about those corporates you mentioned. Are we getting enough spread between investment grade and high yield corporates to make the juice worth the squeeze? Because for a long time, there's hardly any daylight between the yield and both. How do you look at that? Are corporates cheap or expensive investment grade relative to high yield?

24:24Ed Perks: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 BBB, BBB 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, it's emphasis 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.

24:59Ed Perks:And if you can get ahead of that and use your fundamental analysis, that's an area within the fixed income markets we want to be focused on.

25:06Barry Ritholtz:I'm trying to 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 IG and maybe some of it's in between, mean, but the variance is enormous. Fair statement?

25:25Ed Perks: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 starts to change the dynamic of who the investor base potentially is.

25:40Barry Ritholtz:So you've been doing this for a long time. You've lived through the financial crisis, ZERP, 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?

26:08Ed Perks:Yeah, I mean, I think certainly the periods of extreme volatility are going to be challenging for any strategy. and in my career, the ones that I'll go back to, certainly when managing the convertible fund around the dot-com crash. And then in our income strategies, both financial crisis. So, yeah, markets bottomed in March 2009, but September of 2008 was pretty difficult for any investor. To me, I think what's really defined our strategies and maybe become a little bit of the focal point of our approach is to continually look forward. I mean, I think the number of investors, even if we were to bring this more into the current time, we spoke less than a year ago and tariff volatility was impacting markets, I think a lot of investors have the tendency to sit on their hands a bit when there's this kind of volatility playing out in markets.

27:04Ed Perks:And maybe even the worst case would be going to the sidelines, which we know a lot of investors did in September of 2008 or March of 2009. 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 playing offense a little bit more during those periods of time. And I think that's something that has always enabled us to kind of recharge the portfolio.

27:40Ed Perks: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 really has enabled us to kind of ultimately come out of periods of volatility and deliver for our investors, even though there might have been some bumps along the way.

28:03Barry Ritholtz:So 2022 was the first year that saw double digit losses in both stocks and bonds since 40 years earlier, 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 anytime soon?

28:39Ed Perks:Well, I think the backdrop was really set for that dynamic. And what I mean by that is where rates had declined to. You didn't have the carried offset negative returns in fixed income And the resetting of where rates should have been provided that the fuel to drive those kind of negative total returns. So we really think we're in that, certainly not in that position today. Never say, you know, can we don't expect that that can never happen again, but certainly not the backdrop that we're envisioning today. So just the rationale or why are bonds, can bonds be a diversifier in a multi-asset portfolio?

29:21Ed Perks: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.

29:31Barry Ritholtz:And that was good for prior 20 years. They were not producing a whole lot of income. After 2022, yields were, look, 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? Are you looking to extend credit quality? Is there now reinvestment risk if you're too short? How are you thinking about this?

30:03Ed Perks:Yeah, we've made such a significant move into fixed income in 2022 and 2023 that we do have that now in the corporate space in particular. We have companies that are engaging the market, refinancing. So some of the real prized kind of investments we were able to make at the 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 that dollar goes back into the high yield bond market for us it's always going to be that 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 we think outside of the very large mega cap tech companies that have driven this market since 2023, that there's pretty reasonable valuation.

30:57Ed Perks: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 two to three 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 a pretty interesting profile on the upside.

31:20Barry Ritholtz: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 fund. You followed Charles Johnson, who was 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.

31:51Ed Perks:Well, first let me mention I had a chance to sit down with Charlie last month, something I try to do on as regular basis as I can and to still see and meet with him and hear the stories of some of the history is something that I really, really cherish and value doing. You know, I think from the standpoint of the path that we've been on with Franklin Income, you know, joining in 2002, 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 navigating our way and being able to engage the broad cross-section of markets and perform very well for a five-year period really helped establish this.

32:46Ed Perks: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 and an ETF. So it's been – and 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.

33:26Barry Ritholtz:And for listeners who may not be familiar with the Franklin Income Fund, a couple of things really struck me about it. First, not too long ago, it celebrated its 75th anniversary. Ain't 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.

33:58Ed Perks:It is a great, it's really a great story. It was part of the original custodian funds for Franklin. And the first four were 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, four asset classes, and find the most attractive income investments.

34:24Barry Ritholtz: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 else do you look at that are either asset-backed or CLOs or any exotic other products that theoretically generate pretty good yield relative to the risk the investor assumes?

34:49Ed Perks:Yeah, I mean, I think that agency mortgages tend to be 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 secure debt.

35:08Barry Ritholtz:So I recall coming out of the financial crisis, DoubleLine, as an example, had a ton of mortgage backs. And it just seemed as everybody refinanced and refinanced their homes, the available paper just disappeared. I'm doing this off the top of my head, but it was something like 90 percent mortgages when it started. and ended up at like 25 or 35 % mortgages. We've seen a significant slowdown in home sales. Yield has been higher than it's been for the past 20 years. So we haven't seen a lot of refinancing or a lot of new issuance. Is there enough mortgage-backed paper out there? What's going on in that space?

35:53Ed Perks:Yeah, and certainly it's been topical just the last week or so with, you know, The Fannie and Freddie purchases,$200 billion a month or some wild number. An additional$200 billion, but even beyond that, there could be an extension. So we did see the mortgage market react. We saw spreads kind of come down. And ultimately, bringing longer-term rates down is going to be probably the biggest beneficiary in terms of activity within the housing market.

36:19Barry Ritholtz:Do we have to get down to 5 % mortgage rates to see this really kick up? Or where are we now, six and change, six and quarter?

36:28Ed Perks: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 overall health of the economy and the labor market are going to be a major component of being able to get some of that activity going in the housing market.

36:46Barry Ritholtz:How closely do you track macroeconomic news? If I had to describe the labor market today, I would say 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. 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?

37:28Ed Perks:Yeah, there's something like the labor market clearly has taken 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 and encouraged for the Fed to begin a resumption of the interest rate cuts. Now, I think there's kind of a reluctance in the labor market on both sides. There's a reluctance maybe at the corporate level to hire. There's a lot of uncertainty. Some of that was brought on by 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.

38:06Ed Perks: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 the labor market.

38:13Barry Ritholtz:Really, really interesting. Coming up, we continue our conversation with Ed Perks, CIO of Franklin Income Investors, talking about where he sees value in various equity markets. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

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40:14Barry Ritholtz:You ever wonder how far an EV can take you on one charge? Well, most people drive about 40 miles a day, which means you can do all daily stuff no problem. Go to work, grab the kids at school, get the groceries, and still have enough charge to visit your in-laws in the next county. But they don't need to know that. And the best part, you won't have to buy gas at all. The way forward is electric.

40:39Ed Perks:Explore EVs that fit your life at electricforall.org.

40:47Barry Ritholtz:I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest today is Ed Perks. He's chief investment officer at Franklin Templeton Income Investors, as well as president of Franklin Advisors. He has managed several go anywhere as well as income funds for Franklin Templeton, including the flagship Franklin Income fund, which can purchase pretty much anything it wants that generates income. We were 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.

41:37Barry Ritholtz:How has your views changed over the past five years of other than 2022 double digit gains in equities?

41:47Ed Perks:Yeah, I think we've gone through this period since the pandemic with different cycles within the equity markets. And certainly there was a tilt immediately towards growth and value underperformed. I think it's shifted a bit, certainly in 23 and 4. We saw it transition to more of a market cap dominance, and that certainly has proceeded, I think, since the beginning of 2023. Something like the S &P 500 market cap has nearly doubled 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.

42:43Interesting.

42:44Barry Ritholtz:So we've also seen active equity management under fairly intense competitive pressure, really, for a good couple of decades. How does that change how you look at equity selection or asset allocation?

43:01Ed Perks:Yeah, you know, I think, you know, from 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 mega cap stocks, the market-weighted indices, and the average stock or the equal-weighted indice. I think for us, it really becomes more about security selection. There's still plenty of liquidity in those other stocks. And to the extent that we can turn over rocks that maybe other investors are not looking at that aren't being influenced as much by the magnitude of flows coming into passive indices is something that is a big part of our overall allocation.

43:46Ed Perks:But I would really go back to 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.

44:10Barry Ritholtz: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?

44:42Ed Perks:Yeah, I think one of the more interesting components of our strategy is taking a little bit more of a holistic approach for how we invest in a company. I mentioned before, 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 a capital structure, it's pretty common that between a third or 40 percent of the portfolio will be invested in companies where we own multiple parts of a company's capital structure.

45:12Barry Ritholtz:Meaning their bonds, their equity, and their convertibles or some combination.

45:15Ed Perks:Which it is somewhat common in a multi-asset strategy to have kind of different components.

45:24Barry Ritholtz:And if you like the company, if you've done the research and its 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?

45:42Ed Perks: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 1.5 % to 2%.

46:01Barry Ritholtz:Didn't make any sense, right?

46:02Ed Perks:Exactly. 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 5%, 5.5%.

46:22Barry Ritholtz: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. I don't know who is enthusiastic about that. How do you, when you see a new issuance like that, 2%, why don't I care about 2 %? Or is 2 % attractive in a zero-rate environment?

46:53Ed Perks:Yeah, I think for us, it's much harder to have that make 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 investment grade.

47:12Barry Ritholtz:Suddenly they're attracted, right?

47:13Ed Perks:Yeah, 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 opportunity down the line.

47:25Barry Ritholtz: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 101.

47:33Ed Perks:Yeah, that was part of the, you know, like I said before, the very loud announcement that the bond market made around its returning to more normal functioning in 2022.

47:43Barry Ritholtz:So let's talk about the flip side of that. Real default risk. We haven't seen a whole lot of defaults other than a handful of very specific corporate. There was a big fraud case recently, that company and all its fixed income in the automotive sector crashed and burned. But for the most part, default rates have been fairly low. How do you look 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?

48:19Ed Perks:I think first from a top-down standpoint, 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 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 very much, though, about the fundamental analysis, the idiosyncratic risk 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.

49:04Ed Perks:And that could be the debt maturity wall or access to capital and liquidity to ultimately deal with debt as it comes due.

49:13Barry Ritholtz:How do you think about systemic risk relative to what the central bank is doing and the Treasury Department 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 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 less about specific companies and more about we're not going to let the system collapse?

50:02Ed Perks:Yeah, that's a good question. I think we've been through a lot over the last 20 years. A lot, right?

50:08Barry Ritholtz:A hundred years worth of stuff and a decade and a half.

50:11Ed Perks:Yeah, I think if you look at some of the policy measures, maybe not initially out of the gate following the financial crisis, but the long tooth 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. And, look, 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 investing across the range of fixed income sectors and the range of sectors within the equity market certainly helps lend a bit more resilience to the strategy in the case where markets become a little bit more concerned about systemic risks.

50:57Ed Perks:You know, I think one of the probably more interesting things 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 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 market. So I think that's something that we're certainly close to and both looking at potential opportunities because we can play in private assets within our Franklin Income strategies.

51:31Ed Perks:But if there were something that we would want to keep very much on the radar is what is happening in that space in terms of credit quality.

51:39Barry Ritholtz: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 pitch from the private credit side?

52:17Ed Perks:I think it's evolved in a healthy way. I think using volatility measures is somewhat debunked. I think leading with a sharp ratio when you're comparing public and private assets is not something investors should be focusing on. And, you know, I think the ultimately it has a meaningful place. The definition of public credit can be extraordinary of private credit. Sorry, it can be extraordinarily wide. And I think as that capital has come in, it has started to look at a lot of different places to to ultimately have or have its role in financial markets. So we certainly think it's it's it's a viable asset.

52:57Ed Perks:We just in any and really this goes kind of across any asset. when you see the kind of capital moving into a certain area, there's just a greater risk of maybe less disciplined things happening. And that's something that we think could become a little bit more apparent here as we move forward.

53:15Barry Ritholtz: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 SMA they own or the mutual fund or ETF they own? I know fixed income is not quite as intuitive as equities. You must hear from a lot of different clients. What's out there amongst Main Street yield investors?

53:48Ed Perks:I think one of the biggest things 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 utility stocks, right? Bond-like surrogates within the equity market, that's what you must invest in as an income investor. And the reality is much broader than that. even in the components, say, 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.

54:39Ed Perks: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.

54:53Barry Ritholtz:Really interesting. Sticking with dividends, the S &P 500 dividend yield, under 2%. Way back when, it was 3.5%, 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 a source of yield?

55:18Ed Perks:Yeah, I think it's a group that you want to consider. I think back to just the profile we've had in equity markets, the dominance of mostly non-dividend paying stocks, the mega cap tech companies in particular. And 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 a portfolio manager is Southern Company. And what probably very few people would expect if you go back to 2002, since that time period, Southern Companies actually matched the return of the S &P 500.

56:05Barry Ritholtz: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 7 outperforming. Only two of the Mag 7 beat the S &P 500 last year. Amazing data point. How are you looking at the rest of the S &P 500? How are you looking at the value sector? Can we reasonably expect to see this broadening continue in the future?

56:36Ed Perks:Yeah, we do think there is some interesting value in parts of the equity market. And maybe they are companies that have been a little bit out of the spotlight. We do have a pretty good amount of sector diversification. So we're finding opportunities in these different areas. It'll be healthcare, it'll be industrials, energy, utilities, even in materials. Some of these trends, let's take globalization and really this move that is still evolving into maybe hemisphere controls and near shoring of supply chains, some things that came out of the pandemic. You know, all of that has pretty significant implications.

57:16Ed Perks:So finding companies that have that play on a select theme that you identify and want to play, we think there's a lot of that opportunity in the equity market.

57:26Barry Ritholtz:I've been mostly thinking about and talking about U.S. equities. Last year was the first year where MSCI developed and even emerging markets, just wherever you looked overseas, thumped the U.S. And the U.S. was, you know, up almost 18 percent, NASDAQ up a little over 20 percent. How do you look at the rest of the world when it comes to either fixed income or equities?

57:53Ed Perks:Yeah, I certainly think that made a great storyline for 2025. Reason being, if we go back and look at 23 and 24, though, U.S. stocks had outperformed so massively.

58:05Barry Ritholtz:Or the past 15 years or so.

58:07Ed Perks: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.

58:17Barry Ritholtz:And the dollar dropping almost 10 % last year. Exactly.

58:20Ed Perks: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 balance between the markets.

58:33Barry Ritholtz: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? And you're a go-anywhere investor, so you go anywhere with this. What assets, geography, policies, data points are getting overlooked but shouldn't?

58:56Ed Perks:Yeah, I think we're going to keep coming back to right now we really feel like policy is paramount. So really focusing on where policy will ultimately take the market. Midterm elections are going to continue to be a very significant overhang 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 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.

59:41Ed Perks:So we did see a very substantial. Very low, right? Low, low. And that tends to be a point where we want to be a little bit more cautious when naturally there's not a lot of volatility expected to be coming in markets. For us, that means we can stay invested. We can focus on areas that deliver attractive income and really maintaining that nimbleness in the portfolio and the strategy that we have.

1:00:06Barry Ritholtz:Really interesting, Ed. 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?

1:00:17Ed Perks:Yeah, I'd certainly first and foremost on that list 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 hearing the tremendous 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 as we went through that transition 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 money to us is just paramount importance.

1:01:12Ed Perks:And, you know, one of the first things that Charlie asked me 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 portfolio manager still. And he gave me that handwritten note from the investor and asked me to respond directly to her. And that was just something that -

1:01:47Barry Ritholtz:Did you write a letter or did you pick up the phone?

1:01:49Ed Perks:No, we wrote a letter. 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 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?

1:02:20Barry Ritholtz:So let's talk about books. What are some of your favorites? What are you reading right now?

1:02:26Ed Perks: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 sibling's 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 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 reading. I'm more of a nonfiction kind of guy. Occasionally I'll pick up something else. Probably my favorite of all time is the Hemingway classic from The Bell Tolls, where you're reading something that plays out over 72 or so hours.

1:03:15Ed Perks: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 an American we should all read. And certainly Walter Isaacson is not somebody that needs a plug of any sort. He wrote more of a pamphlet called The Greatest Sentence Ever Written. Really? That's the thing that I think with America 250. Because his books are giant. I think this is around 50 pages. No kidding. So it's the greatest sentence ever written. And I haven't gone through it yet, but I've heard him speak about it.

1:03:59Ed Perks:And it's just very inspiring. Like I said, it's something that 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.

1:04:11Barry Ritholtz:I have For Whom the Bell Tolls on my list, and I just read on vacation last month, The Sun Also Rises, but nothing beats The Old Man and 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 are you streaming these days? What's keeping you entertained?

1:04:40Ed Perks:I haven't started Landman 2 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 sci-fi of choice was probably something like Stargate SG-1 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.

1:05:05Barry Ritholtz: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

1:05:25Ed Perks:college students recent grads that think they've already decided what they want to specializing early yes or having a 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 you have plenty of time. You have nothing but time.

1:05:55Barry Ritholtz: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?

1:06:15Ed Perks: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. 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.

1:06:54Barry Ritholtz: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 has been really quite fascinating. We have been speaking with Ed Perks. He's CIO of Franklin Income Fund, as well as a 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 at. I would be remiss if I didn't thank our crack team that helps put these conversations together each week.

1:07:36Barry Ritholtz:I'm Barry Ritholtz. You've been listening to Bloomberg's Masters in Business.

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