Animal Spirits Podcast

Episode: Talk Your Book: Income and Momentum

Date: April 6, 2026
Hosts: Michael Batnick, Ben Carlson
Guests: Bill Mann (Motley Fool Asset Management), Kevin Liniak (Morgan Stanley/Eaton Vance)

Episode Overview

In this “Talk Your Book” double-feature, Michael and Ben speak with two guests about under-the-radar strategies for investors seeking income and growth. The first half features Bill Mann, chief investment strategist at Motley Fool Asset Management, discussing the logic, process, and behavioral insights behind their new Momentum ETF (MFMO). The second half welcomes Kevin Liniak, managing director at Morgan Stanley, to unpack the world of preferred securities and their role in today's fixed income landscape, focusing on the Eaton Vance Preferred Securities and Income ETF (EVPF).
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Part 1: Bill Mann – The Case for Momentum (00:55 – 17:09)

The Market’s Underappreciated Factor

• Momentum as the Overlooked Sibling: While value investing is well-understood, familiar, and widely allocated to, momentum remains underutilized despite its proven efficacy.
  • Quote (03:55, Bill Mann): “Value seems like it's the good child, the good son. And the momentum kind of feels like the goth kid who makes mainly good decisions, but is a little bit counterculture.”
• Investor Behavior: Most investors chase momentum at the individual stock level, but not through diversified, systematic factor exposures.

What Is Momentum, Really?

• Cheating Off the Market’s Paper (04:17): Bill describes momentum investing as “cheating off the market’s paper” – letting price action reveal which companies are winning with investors, instead of purely fundamental predictions.
  • There’s an inherent behavioral edge: momentum exploits both underreactions and overreactions.

Rule-Driven, Quality-Filtered Momentum

• Rules-Based Process:
  • The MFMO ETF uses pre-determined, mechanical rules – monthly lookbacks, calculated quarterly – to avoid manager bias and let the factor “do its work.” (06:00)
• Quality First, Momentum Second:
  • The underlying universe comprises high-quality companies screened by Motley Fool’s research (strong free cash flow, asset-light, long-term compounders).
  • Quote (10:49, Bill Mann): “…so the momentum that we are finding within our universe is based upon the companies that...have already pre-cleared. We very much view quality as being high free cash flow companies…then using that universe to put a momentum factor on top of it.”

Performance Chasing – The Right Way

• Debunking the “Don’t Chase” Myth:
  • “You should chase performance—just systematically.” (08:11, Ben Carlson)
  • Bill notes that most investors chase 1-, 3-, or 5-year fund returns, but that’s reactive and often backfires; true momentum is about defined, repeated metrics, not hunches.

Portfolio Construction

• Turnover and Holdings:
  • Target annual turnover: ~50% (14:04).
  • Largest positions as of recording: Lam Research, Walmart (12:11).
  • Universe: 100 largest US companies by market cap (13:43); likely to swim in “mega cap” territory.
• What Happens in Bear Markets? (14:52)
  • In market “washouts,” the fund would default to “the least negative momentum”—owning the best of the worst, like consumer staples.
• Sector/Industry Constraints:
  • No sector caps; position size per security limited to a max of 4.8% (16:12).
  • Strategy is a “chameleon”—can center on any sector trending at a given time.

Notable Quotes & Moments

• Behavioral Framing:

  “Momentum is the ultimate behavioral factor. It’s the overreactions and the underreactions, like one compound's on top of the other.”
  — Michael Batnick (05:32)

• On Measurement Specifics:

  “We don’t put our finger on the scale...defining momentum. And we look back monthly, but recalculate quarterly.”
  — Bill Mann (06:00)

• Why Hold Winners:

  “I would be more than happy to hold Lam Research in perpetuity...we are very, very happy to, you know, for companies that...demonstrate long term free cash flow generation, to be within the portfolio for a really long time.”
  — Bill Mann (12:11)

Part 2: Kevin Liniak – Preferred Securities & Modern Income (17:26 – 37:47)

The Fixed Income Reset: Preferreds in the Spotlight

• Pre- and Post-Covid Landscape (17:30):
  • Pre-2022: Low yields, difficult for income-focused portfolios.
  • Post-2022: Rate hikes and inflation upended fixed income; new opportunities and risks emerged.
• Preference for Preferreds:
  • Income and Tax Advantages:
    • Preferreds offer tax-advantaged income—qualified dividend income taxed at capital gains rates, not ordinary income (18:23).
    • For much of the 2010s, investors shifted here to find income when traditional bonds yielded little.

What Are Preferred Securities?

• Hybrid Nature:
  • “They really trade like fixed income...a hybrid of equity and debt.” (20:27)
  • Offer yields comparable to double-B high yield, but with (often) less risk; many are investment grade.
  • Major innovation: “fixed-to-floating” structures—initial fixed coupon, then reset rates tied to the Treasury, resulting in lower interest rate sensitivity (21:27).
  • Institutional market preferreds often have these beneficial structures.

Why Do Companies Issue Preferreds?

• Corporate & Regulatory Reasons (22:26, 24:50):
  • Preferreds are cheaper than issuing equity, but a bit pricier than debt.
  • For banks: preferred stock counts as equity for regulatory purposes (up to 1.5% of risk-weighted assets)—attractive since Dodd-Frank (2010).
  • Utilities issue preferreds to help meet capital expenditure needs at a cost lower than new equity.

Private Credit and the Income Barbell

• Recent Private Credit Craze (25:48 – 28:29):
  • Private credit/BDS has stolen the narrative—10%+ yields, floating-rate, riskier, and less liquid.
  • Advisors have used a barbell: high-quality bonds for safety, private credit for high yield.
  • Risks include illiquidity (“gates”), sector concentration (e.g., software exposure), and rising outflows as the cycle shifts.
  • Systemic Risk? No, says Liniak: “It's much safer than lending to them [businesses] directly...you'd have to have complete Armageddon.” (29:38)
  • The move out of banks and into private credit was driven by post-crisis regulation pushing lending into the “shadow banking” system (31:32).

Diversification and Active Management in Modern Fixed Income

• Betrayal in the Bond Market (33:30):
  • Many were shocked by steep losses (-18%) in aggregate bond funds during the 2022 bear market, catalyzing a search for diversified income sources.
• ETFs & Modern Options:
  • Today's landscape includes not just preferreds, but asset-backed securities, option-based strategies, and more.
  • Quote (34:14): “There is no free lunch in investing. But diversification gives you the closest thing to it...”
  • Risks exist everywhere: even Treasuries face deficit and political risk.

Eaton Vance’s Approach: EVPF ETF

• Active vs. Passive in Preferreds (35:31):
  • Market has ~$40B in preferred ETFs; half are passive.
  • Liniak sees more opportunity for active management—especially in accessing “fixed-to-floating” preferreds and global contingent convertible bonds (“CoCos” or “AT1”).
  • Their portfolio: ~90% in fixed-to-floating/floating rate preferreds; up to 30% may be global (currently less).

Notable Quotes & Moments

• On Preferreds for Income:

  “The coupons or dividends in preferred securities, they pay qualified dividend income, which means you're getting taxed at that capital gains rate instead of the ordinary income rate. That's a big difference. I think it juices up your yield.”
  — Kevin Liniak (18:23)

• The Horseshoe of US Politics:

  “We have 39 trillion of debt outstanding right now. We're at 100% debt to GDP...both parties don't really seem to care about deficits right now. So I would say there's risk in all parts of the capital markets...”
  — Kevin Liniak (34:14)

• On Active Management in Fixed Income:

  “A lot of people wonder why fixed income portfolio managers are more intelligent than equity portfolio managers. And I think it's because we create indices that are easy enough to beat...”
  — Kevin Liniak (36:17, joking)

Timestamps for Key Sections

• Momentum strategy overview: 03:01 – 15:51
• Quality screening and portfolio construction: 10:49 – 14:52
• Preferred securities explained: 18:23 – 22:26
• Private credit discussion: 25:48 – 31:32
• Fixed income product diversity & risk: 33:30 – 35:22
• Active vs. passive ETFs in preferreds: 35:31 – 37:44

Takeaways

• Momentum investing offers compelling behavioral and performance edges for those deploying it in a systematic, rules-based way—especially when paired with quality filters.
• Preferred securities are a unique, often misunderstood income play featuring hybrid risk, tax advantages, and benefits over both traditional equity and debt, especially when actively managed.
• Today's fixed income and income-oriented ETF universe is far broader—and riskier— than the past, demanding careful diversification and an understanding that “there is no free lunch” in yield.

For more on the strategies discussed:

• Visit fooletfs.com for Motley Fool's MFMO Momentum ETF
• Visit eatonvance.com for the Eaton Vance Preferred Securities and Income ETF (EVPF)

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