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- [00:01]
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- [01:44]
Narrator/Host Intro
is Masters in Business with Barry Ritholtz
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Barry Ritholtz
on Bloomberg Radio 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 PM of their flagship Franklin Income Fund, 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? 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. With no further ado, my conversation with Franklin Templeton's Ed Perks. Ed Perks, welcome to Bloomberg.
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Ed Perks
Thanks Barry. It's great to be with you.
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Barry Ritholtz
Well, that's really quite an impressive cv. Before we get into the various assets you manage, let's start with your background Economics and Political Science, BA from Yale. That doesn't sound very much like Fixed Income Manager what was the original career plan?
- [03:10]
Ed Perks
Yeah, it certainly wasn't finance. And you know, at Yale I really kind of, you know, certainly had a broad cross section of studies. You know, like many of my classmates, I think if it wasn't med school, it was either law school or going into government. I think that's kind of some of what I was thinking during school. Really 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 experience a different part of the country. 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.
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Barry Ritholtz
Plus, you're done at one o' clock in the afternoon. That's, that's the.
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Ed Perks
You do start a bit earlier.
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Barry Ritholtz
Start at 5:30. It's very, very five in the morning. I remember walking into an office in San francisco and at 8:45 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 join Franklin Templeton. Is this your first gig at a School in 1992? You've been at Franklin Templeton your entire career, is that right?
- [04:27]
Ed Perks
Yes, it is.
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Barry Ritholtz
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?
- [04:40]
Ed Perks
Yeah. Well, when I loaded the car up on Long Island, I drove a small misspeasy 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 thought that I might experience the west coast for a year and a half or two years and make my way back to New York and get the real job, so to speak. 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 the. Prior to the merger.
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Barry Ritholtz
Yeah. Wow.
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Ed Perks
So that, yeah, that certainly dates me and makes me, I guess, a little OG So, you know, I think what was really interesting and I landed at first and took a role 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 a class at Yale, investment analysis, taught by 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 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 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.
- [06:27]
Barry Ritholtz
1990s San Francisco. The tech boom was just ramping up. Late 80s, early 90s. What was that experience like? That had to be the roaring 90s. Had to be quite an experience in San Francisco.
- [06:41]
Ed Perks
Yeah, I'd say it really kind of kicked into gear more in the 96, 7 time period. And then certainly the irrational exuberance. Yes. And that was premature, but there was 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 Hamburg and Quist and Harry Stevens. So you had a lot happening. The economy as a whole, I'd say at that time was far more diversified than it is maybe today. Obviously, technology is such a dominant player within Northern California.
- [07:15]
Barry Ritholtz
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 lock, 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 asset experience to eventually becoming more of a specialist?
- [07:50]
Ed Perks
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 following, industry you were following. And we did have 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 a 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 the career. Ultimately moving out of the analyst role in 1997 and taking on the duties of portfolio manager for that dedicated Franklin convertible securities fund.
- [08:42]
Barry Ritholtz
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. This just isn't generating any. Anything that's worthwhile anymore.
- [09:02]
Ed Perks
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 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'd 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 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 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 on our multi asset income strategies.
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Barry Ritholtz
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 3x or 10x or whatever. What is it about fixed income analysts and investors that makes them so hyper focused on risk management?
- [10:59]
Ed Perks
Yeah, fundamentally you're just doing a different, different type of analysis. And I mean one of the things that we found kind of most fascinating over the is given we have an internal team of equity analysts 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. 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 broader perspective 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, that is what our margins, how are profits growing and what they'll do with that capital.
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Barry Ritholtz
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's interesting, what's attractive? Like, it's almost overwhelming, that sort of freedom to pretty much consider almost every asset class.
- [12:19]
Ed Perks
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 2008, 9, where almost the intent of the policy was to eliminate large sectors and the fixed income markets from being attractive to investors.
- [12:38]
Barry Ritholtz
Right, exactly.
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Ed Perks
So, you know, I really kind of viewed today and you know, the bond market 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. That is, 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.
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Barry Ritholtz
We're going to talk a lot about fixed income coming up. But you're CIO of income investors. What's the biggest macro variable that the CIO of Franklin Templeton Income investors looks at every morning?
- [13:28]
Ed Perks
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 this more kind of where we can be proactive. It's 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 then 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 might be fiscal policy, monetary policy, regulatory policy, but we're in, we're reminded almost on a daily basis now that there's a lot of other factors, foreign policy, geopolitical risk, 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.
- [14:56]
Barry Ritholtz
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 happens. 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?
- [15:48]
Ed Perks
Yeah, I think the desire would be to tune out that noise, to largely ignore it. But the reality in markets, those examples that you've given drove some pretty significant movements, even if just for a short period of time. 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 events, that's one instance. But if we go back a year, there was a two to three week period of tremendous volatility around a policy shift that really gave investors an opportunity around that Tariff Day and Liberation Day.
- [16:58]
Barry Ritholtz
Yeah, it was a week of turmoil and then on pause and off to the races. We had 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?
- [17:35]
Ed Perks
Yeah, I think it's a good, I might broaden it from the two year to say let's look at the curve.
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Barry Ritholtz
Okay.
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Ed Perks
Especially today where I think there's probably more sensitivity around where longer term interest rates are sitting and potentially could go. You know, to me, anything that that increases the confidence, the raises the uncertainty level around the economy I think are challenges that, you know, if we were to see the long end respond unfavorably to would be quite problematic for markets.
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Barry 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.
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Public Investing Representative
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- [19:42]
IBM AI Representative
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- [20:44]
Barry 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?
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Ed Perks
Join the PMT in 2002 and lead in 2004.
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Barry Ritholtz
2004, all right. Not, not two years. That's 20 plus years.
- [21:18]
Ed Perks
So.
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Barry Ritholtz
So let's talk a little bit about what's going on in fixed income. 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 do you like these days?
- [21:46]
Ed Perks
Yeah, you know, I would say in fixed income we are really pretty diversified across the range and for us, that is US 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 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, not a function, not a benefit that investors in fixed income had. Spreads on the corporate side do 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 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.
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Barry 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?
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Ed Perks
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 a surprise upside.
- [23:44]
Barry 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 or. 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? High investment grade relative to high yield?
- [24:11]
Ed 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 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, 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. 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.
- [24:52]
Barry 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. But, but the variance is enormous fair statement.
- [25:11]
Ed Perks
Yeah, I think that is. And 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.
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Barry Ritholtz
So you've been doing this for a long time. You've lived through the financial crisis, zirp, 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?
- [25:55]
Ed 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, you know, go back to certainly when managing the convertible fund around the dot com crash and then in our income strategies, both financial crisis. So, you know, yeah, markets bottomed in March 09, but September of 08 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 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 when tariff 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 08 or March of 09 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. Pretty firm believer in that 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.
- [27:50]
Barry 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 year? Is that likely to happen anytime soon?
- [28:26]
Ed 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 carry to offset negative returns in fixed income and the resetting of where rates should have been provided 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 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? 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.
- [29:18]
Barry Ritholtz
So and that was good for 20 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?
- [29:49]
Ed Perks
Yeah, we've made such a significant move into fixed income in 2022 and 2023 that you know, 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 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 you know, we think outside of the very large mega cap tech companies that have driven this market since 2023 that there's pretty reasonable valuation. 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% dividend yield, but if we can access a convertible, we can blend that yield up to something that's more attractive for our strategy and yet still retain, you know, a pretty interesting profile on the upside.
- [31:07]
Barry 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.
- [31:38]
Ed 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 cherish and value doing. You know, I think from the standpoint
- [32:00]
Public Investing Disclosures
of
- [32:02]
Ed Perks
the path that we've been on with Franklin income joining in 2002, it was a large strategy for Franklin. At the time it was 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 performed 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 and 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.
- [33:12]
Barry 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.
- [33:44]
Ed 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.
- [34:10]
Barry 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, 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?
- [34:36]
Ed Perks
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, 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.
- [34:55]
Barry Ritholtz
So I recall coming out of the financial crisis double line 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% mortgages when it started, 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?
- [35:39]
Ed Perks
Yeah, and certainly it's been topical just the last week or so with you
- [35:44]
Barry Ritholtz
know, the Fannie and Freddie purchases. 200 billion a month or some wild
- [35:49]
Ed Perks
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 market.
- [36:06]
Barry Ritholtz
But do we have to get down to 5% mortgage rates to see this really kick up or where are we now? Six and change, sixth quarter?
- [36:14]
Ed 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, the overall health of the economy and the labor market are going to be a major major component of being able to get some of that activity going in the housing market.
- [36:32]
Barry Ritholtz
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.
- [37:14]
Ed Perks
Yeah, there's something like the labor market clearly has taken kind of a front seat.
- [37:19]
Public Investing Disclosures
Right.
- [37:19]
Ed Perks
We had the Fed really focused on fighting inflation and then as we saw the labor market market weakening ultimately in encourage for the Fed to begin a resumption of the interest rate cuts. Now I think there's a kind of a reluctance in the labor market on both sides. Right. There's 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 the labor market.
- [38:00]
Barry 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.
- [38:29]
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- [40:24]
Ed Perks
Learn more@adobe.com do that with Acrobat.
- [40:31]
Barry 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. Let's 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. How has your views changed over the past five years of other than 2022 double digit gains in equities?
- [41:31]
Ed Perks
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 value underperformed. I think it shifted a bit. Certainly in 23 and 4 we saw a 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, 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.
- [42:27]
Barry Ritholtz
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, at equity selection or asset allocation?
- [42:45]
Ed Perks
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 exacer. 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 indices. 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 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.
- [43:55]
Barry Ritholtz
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 multiasset 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?
- [44:26]
Ed 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, 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 structure.
- [44:55]
Barry Ritholtz
Meaning, meaning their bonds, their equity and their convertibles or some combination which it's.
- [45:01]
Ed Perks
It is somewhat common in a multi asset strategy to have kind of different components.
- [45:09]
Barry 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.
- [45:26]
Ed 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
- [45:44]
Barry Ritholtz
1/2 to 2% didn't make any sense, right?
- [45:46]
Ed Perks
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 5, 5 and a half percent.
- [46:06]
Barry 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. 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 want care about 2% or is 2% attractive in a zero rate environment?
- [46:37]
Ed 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, and investors 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.
- [47:09]
Barry 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 one on one.
- [47:17]
Ed Perks
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 more normal functioning in 2022.
- [47:27]
Barry Ritholtz
So. 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. It was a big fraud case recently. That company and 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?
- [48:04]
Ed Perks
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 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 and that could be the debt maturity wall or access to capital and liquidity to ultimately deal with debt as it comes due.
- [48:58]
Barry 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 have 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?
- [49:47]
Ed Perks
Yeah, that's a good question. You know, I think we've been through a lot over the last 20 years.
- [49:51]
Barry Ritholtz
A lot, right. 100 years worth of stuff in a decade and a half.
- [49:55]
Ed Perks
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 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. 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 in 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. 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, 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 were 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.
- [51:24]
Barry Ritholtz
The, 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?
- [52:02]
Ed Perks
I think it's evolved in a healthy way. I think using volatility measures is somewhat debunked. I think, you know, leading with a Sharpe ratio when you're comparing public and private assets is not, not something investors should be focusing on. You know, I think the, ultimately it has a meaningful place. The definition of public credit can be extraordinarily 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 ultimately have its role in financial markets. So we certainly think it's a viable asset. We just in any and really this goes kind of across any asset. When you see the kind of, 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, you know, a little bit more apparent here as we move forward.
- [52:59]
Barry 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 what's out there amongst Main street yield investors?
- [53:32]
Ed Perks
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 utility stocks 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. So that opens up the opportunity to own, and we do in our strategy today, convertible like Instrument Instruments in Amazon, in Microsoft, in Metta. So we really have a much broader cross section in the equity markets to pursue investments.
- [54:37]
Barry Ritholtz
Huh? 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 a source of yield?
- [55:03]
Ed Perks
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 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 match the return of the S&P 500.
- [55:49]
Barry Ritholtz
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 are you looking at the value sector? Can we reasonably expect to see this broadening continue in the future.
- [56:21]
Ed 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 health care, 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, all of that has pretty significant implications. 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.
- [57:10]
Barry Ritholtz
I've been mostly thinking about and talking about US 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?
- [57:37]
Ed Perks
Yeah, you know, I certainly think that made a great storyline for 2025. Reason being, you know, we go back and look at 23 and 24 though US stocks had outperformed so massively so
- [57:49]
Barry Ritholtz
or the past 15 years or so,
- [57:51]
Ed Perks
at some level we do think it was primed for a little bit of a reallocation towards non US markets. And then you add on some of the population policy dynamics around tariffs and,
- [58:01]
Barry Ritholtz
and the dollar dropping almost 10%.
- [58:03]
Ed Perks
Exactly. And that really led to some of that reallocation. A lot of the outperformance of non US 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
- [58:16]
Barry Ritholtz
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 it. And you could, you're a go anywhere investor, so you go anywhere with this. What, what assets, geography, policies, data points are getting overlooked but shouldn't.
- [58:41]
Ed Perks
Yeah, I think we really keep coming back to right now. We really feel like policy is 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 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 very, 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 low, right?
- [59:27]
Barry Ritholtz
Low, low.
- [59:28]
Ed Perks
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, in the strategy that we have.
- [59:50]
Barry Ritholtz
Really, 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.
- [60:02]
Ed 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, 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. And you know, one of the first things that Charlie asked me to do in 2000, 2002, it 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 hand written note from the investor and asked me to respond directly to really? And that was just.
- [61:30]
Barry Ritholtz
Did you write a letter or did you pick up the phone?
- [61:33]
Ed 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.
- [62:03]
Barry Ritholtz
Easy to lose sight of that, right? So let's talk about books. What are some of your favorites? What are you reading right now?
- [62:10]
Ed 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 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. So I'm more. More of a nonfiction kind of guy. Occasionally I'll pick up something else. Probably my favorite of all time is the Hemingway classic For Whom the Bell Tolls where 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. 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. And that's something that I think with America too because his books are giant. I think this is around 50 pages. No kidding. 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 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.
- [63:55]
Barry Ritholtz
This year 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 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 are you streaming these days? What's keeping you entertained?
- [64:25]
Ed 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, my sci fi of choice would probably something like Stargate SG1 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.
- [64:49]
Barry Ritholtz
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?
- [65:05]
Ed Perks
It would be just that I see far too many college students, recent grads that think they've already decided what they
- [65:14]
Barry Ritholtz
want to specializing early.
- [65:15]
Ed Perks
Yes. Or are having a definitive I need to find the job in this and I just reflect on my own path
- [65:22]
Barry Ritholtz
that
- [65:25]
Ed Perks
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.
- [65:39]
Barry 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?
- [65:45]
Ed Perks
You know, it can happen.
- [65:48]
Barry Ritholtz
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?
- [65:59]
Ed Perks
Oh, it's such a good question. I mean, a lot of ways you almost wouldn't want things to be entirely different. 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.
- [66:38]
Barry 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, this has been really quite fascinating. We have been speaking with Ed Perks. He's CIO of 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 at. 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.
- [67:32]
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