Thornburg Investment Income Builder Fund – 2nd Quarter Update 2023

Thornburg Investment Income Builder Fund – 2nd Quarter Update 2023

Adam Sparkman: Good afternoon and welcome to the Thornburg Investment Income Builder quarterly update call. My name is Adam Sparkman, and I am a client portfolio manager with Thornburg Investment Management. A few housekeeping items before we get started. At this time, all participants are in a listen-only mode. However, you can ask questions at any time by submitting them through Webex or emailing us at questions@thornburg.com. This webcast is being recorded, and a replay will be available in a few days.

Just to remind you, today’s presentation may contain forward-looking statements based on management’s current expectations and are subject to uncertainty and changes in circumstance. Actual results may differ materially from these statements due to various factors, including those described in our SEC filings.

For those of you on the call today who may be less familiar with Thornburg, we are an investment manager based in Santa Fe, New Mexico, overseeing approximately $42 billion of assets across a suite of actively managed equity, fixed income, and multi-asset solutions. I’d like to quickly introduce our speakers today: Brian McMahon, portfolio manager, vice chairman, and chief investment strategist for Thornburg, along with Ben Kirby, the firm’s head of investments and a portfolio manager, as well as portfolio managers Matt Burdett and Christian Hoffmann, who is sitting in for Jason Brady. So with that, let me turn it over to Brian McMahon, who will kick us off.

Brian McMahon: Okay, thank you, Adam, and thank you to everybody on the call today. I’ll just remind you that you can lob in questions on the website, and we will follow a slide presentation that’s also on our website at thornburg.com, and with that, I’ll just dive into Slide 2, where we set out some key macroeconomic issues at the moment. I think maybe the most important one is that inflationary pressures persist and are above target; however, they’re moderating, and we think they will continue to moderate in the next few months. Labor compensation, meanwhile, is growing, so really, for the first time in a couple of years, real wages are growing. Financial conditions have tightened; the Fed and other central banks are withdrawing funds, so money supply is shrinking, and bank deposits are going down. That’s hurt some U.S. banks that loaded up on longer maturity investments during the period of financial repression. It remains to be seen what extent the Fed will continue to increase rates. Most people call for a further 25 basis point rate increase this month, and then there’s some debate about what will happen, but be that as it may, it looks like we’re near the top. We’re near the top with what appears to be an unemployment rate that’s well below earlier predictions for this stage, so financial asset prices have been happy about all that. Equity prices are generally up; bond prices kind of flatish year to date, but investors still struggle to understand what will happen next. Importantly, Thornburg Investment Income Builder Fund is a solution that consistently has been able to provide attractive income, and because the income has grown and the assets we own that produce that income have become more valuable, we’ve also had NEV increases, and Matt Burdett will go over that later in the call.

What I’d like to do in the next few minutes is just talk a bit about the specifics of the equity portfolio, and if you look at Slide No. 4, you’ll see an overview of our portfolio allocation shifts. What you see there is an increase in energy year over year in our allocation to energy, and some of that is appreciation, and some of that is that we added two positions there, and utilities as well, where we added one position and increased weightings in some others, particularly in Europe that got stressed last year even though their businesses were growing. We’ve paid for that with reductions in our allocations to healthcare and communication services. Most of the other sectors didn’t have notable sectoral-level changes.

We go to the next slide, No. 5. I think the key here on the left side is we are just over 80 percent, 82 percent in equities and 18 percent in cash and bonds, virtually all of which are domestic. On the equity side, foreign equities are about 2 to 1 higher than domestic equities, which is somewhat typical of where we’ve been in recent years, a bigger tilt to foreign equities just because of valuation differentials and dividend differentials in recent quarters. The equity characteristics, again this quarter, the PEs have been in that 9 to 10 times range, which is where we’ve been most of the last year. Whether we’re looking at a trailing PE or a forward PE, we have to go back to the end of 2021 when it was up in the teens, and the dividend yield at 5.6 is also a bit higher than it’s been. I think a year ago at this time it was about just barely over 5, and that reflects some dividend growth. You can see that the price to book and price to cash flows are pretty modest given the dividend yield and mid-teens return on equity from our portfolio weighted average investment.

If I go to the next slide, we show our top ten equity holdings, and in fact, even the following slide is the next ten, so you have our top 20 equity holdings on Slides No. 6 and 7, and combine these accounts for 52 percent of the portfolio assets as of June 30. A couple of things I would point out looking at these two slides together: of the 20, 19 of them have 5-year dividend growth that kind of averages in the mid-single digits, some of them quite a bit higher. If you focus on the middle column, you’ll see that a number of our dividend growers that have actually very attractive dividend yields today were down double-digit percent last year in that negative market last year, and some of those are the ones that have come back pretty strongly this year, but not all of them, which is why we continue to view the portfolio as being very attractively valued given the attractive dividend yields that these businesses have today and the fact that we do look for dividend growth from most of them. So you can peruse those at your leisure.

The next ten slides from No. 8 to No. 17 show individual detail on our top ten holdings, and it’s just summary details, but it will give you some idea of what we own and some significant facts about these businesses. I think if you look at these, you’ll see that these are businesses with diverse-paying customers. They generate cash; they’re relatively well capitalized. Quite a number of them have net cash, and the share prices are probably more volatile. We put in 3 1/2-year price charts on each of these slides, and the share prices are probably more volatile than they should be given that the businesses have been relatively sound and actually not all of them came through COVID pretty well, and some of them are up, and some of them are down, and some of them are flat, but importantly, they continue to generate cash, and to the extent that they can do that and continue to grow, we do expect good capital appreciation on top of the dividends.

If I go to Slide No. 18, which will wrap up my comments, it shows the percentage of the portfolio that grew its dividends last year, and it was 75 percent of the portfolio. The 8 percent was flat dividend, 17 percent lower. We don’t know exactly where it’s gonna come in for 2023, but my current expectation is it’ll probably be somewhere close to 70 percent that will grow the dividend, so maybe a little less than last year with the balance being somewhat evenly split. I would expect that those calendar 2023 yields will be somewhere in the neighborhood of where those calendar 2022 yields were in the respective categories, but that gives you a general framework of the kind of things that we’re looking for when we put the portfolio together. We want to get some dividend growth out of our equities and some attractive yield out of our fixed income, and for that to form a base, and with that, I will turn it over to Matt Burdett to talk about performance.

Matt Burdett: Thanks, Brian. Thanks, everyone, for joining. On Slide 19, what I thought I’d do is just remind everyone how the strategy has performed in various interest rate environments, and in this case, these are rising interest rate environments. We’ve obviously gone through a pretty significant one, and we’ll have to see where inflation goes from here as the comps are likely to get a little bit tougher over the next several months, up to 12 months, but we’ll see. It looks like we’re making a lot of progress there. But as you look on this slide, what we did is we looked at several periods, 35 periods in the table there, where the 10-year Treasury yield rose by 40 basis points or more and looked at the investment income builder’s performance relative to other liquid income-producing assets, which, of course, would be bonds, and our blended index. What you can see here is that over this period, on average, the dividend yield for the investment income builder has been about 220 basis points higher than that of the U.S. Aggregate Bond Index, and over those 35 periods, we have a pretty high frequency for outperforming the U.S. Corporate Bond Index. That’s 83 percent of the time, the U.S. Agg 83 percent of the time, U.S. High Yield 78 percent, and then our blended index at 74 percent. A lot of that can be explained by the fact that one, we had a lower bond allocation over the history but also the fact that we’re really more making credit decisions, which Christian will touch on a little bit later in the presentation. Slide 20 is showing you a little bit more specifics around how we have performed in very specific periods of rising interest rates, and you can see the intraperiod peak to trough rise in the 10-year yield on the bottom. Where those little gray house-looking things are, it tells you what the peak to trough is. I think the takeaways here are that over the life, on average, the dividend yield has been about 250 basis points higher than our blended index over time. The other takeaway is that in each of these periods, you can see the Thornburg Investment Income Builder total return is in the lighter blue. The darker blue bars are the blended index, and then the goldish color is the U.S. Corporate Bond Index. All of these are total return, and the takeaway here is that in most of these periods, we’ve outperformed both on the upside and on the downside, and we think that’s really just a result of our stock selection and our credit selection in the portfolio overall. Slide 21 is a snapshot of various market portfolios. Everyone knows ’22 was a year we don’t want to talk about very much. ’23 so far the first half has turned out to be, I think, a lot stronger than most would have expected. I would highlight it’s been a very growth-dominated first half of 2023. You can see the Russell 3000 growth is up 28 percent, and a lot of this is driven by, I think, the AI mania that will remain to be seen whether or not growth will follow through that, but I guess the other point I’d make is it’s just a very narrow market. Right? I think most people know that, but the S&P 500 is up 16.7 percent, but if you look at the contribution, ten stocks made up 73 percent of that return, so it’s, and it’s the names you would know, the names along with Lilly, Eli Lilly, which has been benefiting from the obesity medication, also somewhat of a craze there. I’ll move on to the next slide here to look at the performance over various periods of the investment income builder. You can look at that at your leisure. I would say I guess the most important thing here is looking at the inception returns where, you know, we’ve delivered close to 9 percent return over the history of the strategy in over a time where, you know, as I’ll show you in a little bit, dividends were less important for overall market returns. Slide 23 is showing you the quarterly returns over the history, so we completed our 82nd quarter at the June 30, 2023, quarter-end. 60 of the 82 quarters, we have delivered positive total returns, and that includes 15 of the 20 years, and you can just kind of see the frequency and the magnitude of those returns on the bar chart. As a reminder on slide 24, we do take a dynamic approach in solving the income problem. We think we want to buy bonds when the yields are compensating us for it, and we don’t buy them when they’re not, right? And that’s what this chart is highlighting here. The dark blue line is the income builder cash and fixed income, and the dotted lines are U.S. in blue, High Yield to worse, and then orange is European high yield to worse where you can see on the right y-axis, that’s what the yield to worse is, the left y-axis is the percentage of the portfolio that’s in fixed income. So you can see it got up to 45 percent in, I believe it was June of ’09 when yields were north of 20 percent in fixed income. So if you think about providing a basalt of income in an income solution portfolio, that’s where pretty attractive. We haven’t really seen that since then, but this gives you a sense of the dynamic nature that we use to try and provide the best risk-adjusted income solution. Slide 25, this is just showing the quarterly distributions for the I shares, so if the investment income builder, and I guess what I would highlight here is that the trailing 12 months is about $119.08 versus the prior year trailing month of about the same amount. So, you know, we’ve had some various one-offs over the last couple years, special dividends, sometimes they, sometimes we find new ones, sometimes we don’t. We also had some tax reclaims that were benefits. All of that is, you can find details on in the quarterly commentary which we provide at quarter end, every quarter. Slide 26, this is the history of the investment income builder yield which is the bars here, the light blue bars, compared against our blended index which is the blue line, and also versus the U.S. corporate bond index, and then the dark blue line is CPI. I think the important thing is, one it’s never been above 4 percent across history for the strategy. The dividend over this time has been close to 5 percent, and then that asset growth has been about 3.9 percent. So it’s rough, roughly equal kind of income and capital appreciation. Turning to slide 27, this is the report card, we show this every time we get on this call with you just to remind everyone what we’re trying to do here. So in this first slide, this individual has a hypothetical $100,000.00 investment into the A shares, and over time, they kept their investment, and they collected their income, and they spent it, right? So they didn’t, they didn’t reinvest it. They just spent it, they used it for whatever they wanted. And over this time, they received $168,962.00 of cumulative income on the original $100,000.00 that they put in over 20 years. The capital also more than doubled to $202,741, and so I guess the important thing that I look at is if you think about the 12-month trailing dividend of $10,173.00, and go back to your original $100,000.00 investment, the yield on cost, the yield on original cost means that your yield on original cost is 10.2 percent, which is, demonstrates the power of growing dividends over time. Now, on the next slide, it’s the same situation except this individual decides to reinvest. They don’t need the cash flow right away, and this individual is still working hard and, and the income builder is working hard for them by reinvesting those dividends into more shares over time. And so what’s the result? Well, over time, cumulative dividends are $293,281 on the original $100,000.00 investment, and capital appreciation, plus the reinvested dividends ends up being $540,496.00. So here’s somebody who just let the strategy do the work for them, okay? And so using the same yield on cost concept, you take that and you, that’s really a 29.3 percent yield on original cost given the amount of income that gets kicked off if one decides to turn it on at the end of this period. So that’s the power of growing dividends and reinvesting, and that’s really what we’re trying to do. Slide 29, this is just a reminder to everyone why dividends matter. They matter more in some periods than others, and what this table shows you is the S&P 500, where we have a very long history, and what we do is we go back, and we look at each decade going back to 1871, to 1880, and you can see down the table, and we divide out the average price appreciation, the income component, the sum of those two is the total return, and then on the far right is the income as a percentage of total return, right? So basically kind of a gauge of how much did dividends really matter to your total return on average in a given decade. So on average each year in a given decade. And what you can see at the bottom in the blue is that they’re about equal, right? So price appreciation and income are about half of your total return on average over a long period of time. But what I would point out, looking at the far right column is that that percentage is highly variable, right? So you have percentages as low as 14.9 percent, so dividends were 14.9 percent on average of your total return each year for a decade, right? So that implies the price return was very high, right? Well, look at the following decade, right? So that was the dot com era. The following decade was very different. Dividends were 136 percent of your total return which implies price decline. So on average they declined 50 basis points a year for 10 years. So that can happen. Now you move to 2011, so what I would call the post GFC era, right? Where quantitative ****, and other, uh, uh, wizardry was going on, and what you can see here in that decade, dividends were 16.7 percent of your total return, so actually not very important, and then so far in the next decade which we’re very early in, dividends are also not all that important at 19.2 percent. So just a reminder to everyone that dividends over long periods of time do matter, and be mindful of the fluctuation, so when you think about the performance that I just went over on the report cards, nearly two-thirds of the like of the strategy, dividends didn’t matter very much. They were less than 20 percent of your total return on average versus the S&P which is what every U.S. investor is very familiar with. So, with that, why don’t we, I’ll stop here, and pass it to you Adam, for Q and A.

Adam: All right, well, Matt, Brian, thanks so much for the color on the portfolio. Now we’ve also got Ben and Christian here to chime in a bit on the Q and A session, and got a few questions that have come in. One is kind of been the top of mind for a lot of people right now is recession. We avoided the recession in the first half of the year, it seems like the probabilities have been continually pushed out for the past year, but maybe just where you all see, if there maybe is some different opinions, but Brian, what do you think as far as recession risk, soft landing, moderate recession, hard landing, what’s kind of your base case in the coming months?

Brian: Well, we have some mixed opinions I would say among our various portfolio managers, and we encourage that actually. So it’s something that we discuss day by day as we get new information. I would say with respect to the equities, there’s been a bit of a rolling recession for the last year or so if I look back over the last year, our second-largest segment, the sector is Info-Tech, which is mostly our semiconductor companies in this portfolio, and they’ve been in a recession for the last 3 or 4 quarters. Earlier, energy and materials were booming. Now it’s a little bit maybe starting to reverse with respect to the Info-Tech. A lot of anxiety about financials but they’ve held up better, but if you want to think about it in general, I would ask Christian to weigh in from the fixed income perspective, which is really what’s forming the foundation for all financial asset prices.

Christian Hoffmann: Thanks, Brian. We’re certainly cautious, and I think each cycle is different, and it’s important to keep that in mind, and also use that for some humility as you construct any portfolio that you don’t want to be set up to win and only one outcome. That you have some ballast and some potential for a variety of outcomes. I think one thing different about this cycle is that if you think about corporations with fixed-term debt which is the majority of them, and individuals that also have a significant fixed liability, you think about individuals with large mortgages, this cycle has created a huge asset for those folks. So generally when interest rates rise a tremendous amount, as they have, that causes pain to everyone, but in this case, given that people are sitting on 2 and 3 percent mortgages, and higher up corporations have 3 and 4 percent bonds, you’ve actually given them a gift in this cycle. So that’s very different. But not everyone is winning in this cycle. So if you think about weaker consumers, consumers that don’t have that benefit of that asset that are more exposed to floating rates, you know, they’re certainly feeling the pain of this new environment. You can also think about a lot of the companies that have solely floating rate debt, including a lot of the companies in the lower market, and a lot of private equities, portfolio companies. That’s why you’re seeing trends in those spaces deteriorate, in a very different way relative to, again the higher quality consumer, and the higher quality corporations. So, again, I think this is likely to be different, and you can have, you get, you know, mini patches of weakness, and mini recessions. I think even in that smooth landing which, again, I don’t think is our base case.

Adam: All right, well, great, thanks to both you Brian and Christian. Maybe stick with another kind of macro high-level theme that I think everybody has been also hearing about this year, and that’s artificial intelligence. Maybe Ben, we’ll come to you. Is the portfolio income builder positioned to benefit from AI themes, and are there potential sectors or segments of the market that you think we might be, or maybe the market is overestimating the benefits of AI.

Ben Kirby: Yeah, thanks, Adam. So, look, I don’t think that we predicted generative AI, starting this year, but we own some really high-quality companies who have some exposure to what’s going on in artificial intelligence today. So, you know, we have a big position in Taiwan Semiconductor, and we have for a long time. You know, Brian mentioned some of the cyclical slowdown in the semiconductor space. He said a rolling recession for the last few quarters, and that’s true, you know, TSM is seeing pressure from slower smartphone sales, and slower unit growth, on PC sales. But the AI opportunity is real for them, and it’s sort of driven 5 or 6 percent revenue increase, and an expectation for the next couple of years. So, you know, significant increase in revenue, and probably a bit more than that in profits. That’s about a 3 percent weight in the portfolio. We also own Broadcom, which has had similar revenue upside **** at this point, kind of 5 to 6 percent upgrades versus where we started the year, and that’s about a 4 percent weight in the portfolio. So, you know, that’s positive, and those have definitely been good performers for us. You know, nothing like Nvidia that’s had 55 percent revenue expectation increased this year. As far as broadening out beyond just semiconductors, it’s not totally clear where AI is gonna, is gonna affect different industries. You know, it probably has a significant effect in a lot of places, but right now we’re in the exploration phase, right? So a lot of companies are experimenting with AI, they’re trying to figure out how it might impact their business. A lot of apps will be developed in the next few years, and we’ll have to kind of wait and see how that plays out. You know, one place that we see it possibly playing out that would benefit this portfolio is in the energy space, and we think that some of our big energy holdings can probably use AI to be more efficient in targeting their drilling operations, and so, you know, drilling fewer dry holes, sort of having a higher get rate, a lot of that can be helped with AI.

Adam: All right, thanks for that, Ben. Matt, maybe we’ll come to you with this next one. This is a global multi-asset portfolio, but structurally has been tilted more towards foreign equities, and we’ve got a question on exposure to foreign equities and why such a large position in foreign relative to U.S.

Matt: Yes, good question. There’s a couple of perspectives. As an income-focused solution here, we’re going to buy stocks that are going to pay us an attractive yield that’s going to grow over time. What we look for are companies that have the ability and willingness to pay dividends. Ability means they have a robust business model, generate cash, and have some type of moat that means they’ll have a resilient cash profile. Willingness means they understand that paying out some of that cash to shareholders is part of their capital allocation framework, and not every company does that. It turns out that more companies in the ex-U.S. market have that philosophy, so the menu of options is much greater in terms of sector diversity, yield levels, and other valuation metrics are also attractive. I would just remind everyone that when something is a foreign-listed holding, it doesn’t mean that it doesn’t have any actual U.S. economic exposure. We have many companies that we own that have significant U.S. revenues. For example, Roche Holding is technically a Swiss company listed in Switzerland, but more than half of their business is actually in the U.S. And we also own Merck & Company, a U.S. company that has more business in the international market with ex-U.S. revenues approaching 60 percent. So there are a couple of different elements even though the allocation looks high; we think of it more from the economic exposure that a company has.

Adam: Thanks, Matt. Next question, maybe we’ll swing it back to you, Brian. A question on financials. It’s been an interesting year given the stresses we saw in March and this rising rate environment. As we’re entering earning season, what are you expecting from banks from an earnings standpoint?

Brian: Yeah, I think that depends on the bank. So results will be mixed, maybe some smaller banks that have a high percentage of fixed-rate assets and have to pay up for deposits will get squeezed. In the case of the banks that we own, there should be less of that. If I just look at JP Morgan and what they did in the first quarter, where they had 3.2 trillion of interest-earning assets, and the yield on their interest-earning assets was up to almost 2.5 percent year over year, and the cost of their interest-bearing liabilities was up 1.65 percent. So big expansion and they’ve guided up their net interest income for the year by about $7 billion so far this year. It wouldn’t surprise me if they continued to guide up when they report tomorrow morning, but let’s see what happens. I don’t expect big problems on credit, mostly because employment is strong in the economy here, and in most other geographies, it has held up better than people have expected. So I think loan performance will be okay, and meanwhile, interest margins, at least at the big banks, are expanding.

Adam: All right, thanks, Brian. Christian, let’s take it back to fixed income. We had a pretty nice inflation print yesterday relative to expectations, but it seems like they’re kind of in wait and see mode right now. But what are your thoughts on the rest of the year? Do you think the Fed continues to tighten?

Christian: So, what’s interesting is that the Fed didn’t hike at the last meeting in June. They basically telegraphed that and said, “Let’s have some more data come in, and then we’ll reassess next month,” which is in less than 2 weeks. The interesting thing is there’s not a tremendous amount of data that actually has come out between those two points, and the data is actually rather encouraging. I think the CPI print yesterday was a watershed print. What threw everyone off was probably a garbage ADP number. Again, their methodology has changed, that’s been very unreliable, maybe a lot of lifeguards getting hired for the summer, I don’t know, but it seems like maybe a number. So we’ve had better than expected data, especially on the inflationary side. But the market is still looking for the hike in July, that’s expected to be the last hike, but if you think about it logically, the data, if it was data dependent, they shouldn’t hike, and if they were gonna hike anyway, they should have hiked at the last meeting. So if you unpack it from a logical perspective, it doesn’t make a ton of sense, so I think you have to rely on the explanation that they don’t like to surprise the market. They like to follow a path that they’ve laid out. But right now, the market’s not looking for any other hikes beyond that. Still pricing in roughly a 90 percent probability that that hike happens, and we haven’t heard a bunch of Fed speakers come out and start to push back against it. So I think we get the hike, and I think the idea that we hold here is probably all be aligned.

Adam: Thanks for that, Christian. Matt, let’s come to you with this next one, just kind of a repositioning for the portfolio. We’ve given what happened over the first half of the year, how active was the team in repositioning the equity book?

Matt: Yeah, look, I think we made small adjustments. It’s rare for us to make material adjustments in a short period of time. The mission’s not changed, so wherever we can find ideas that help us achieve the income mission, we’ll take advantage of them when the prices are attractive. We’re sticking to the mission here. The good thing is we now have cash that actually gives us some income. So we’re taking advantage of that a little bit. But not too many big shifts, right? I mean, I think a lot of our companies, as I highlighted earlier, the market performance, at least in the U.S., has been quite narrow. The underlying fundamentals of a lot of our companies, which are partly described in the slides that Brian had, specifically for the top 10 holdings, are still pretty good. But in many cases, the stock prices don’t reflect that. So as long as the fundamentals stick around and continue to look good, and we’re getting income out of these names, we will continue to be disciplined with what the mission is here.

Adam: Alright, thanks, Matt. Maybe we’ll stay with the cash a little bit. Somebody noted that the cash level is maybe a little bit higher, I think around 5 percent for the portfolio right now. So a little bit of dry powder to potentially distribute into the second half of the year. When you look at equities, fixed income, what you like in the yield that you’re getting in the cash, any thoughts around that?

Brian: Yeah, we like the yield because it’s a little over 5 percent. And we have a lot of flexibility to put that to work in other things. Whether we see equity opportunities or fixed income opportunities, I never know exactly what we’ll see, but I do expect we’ll see them. When we do, we have some dry powder to put to work, and getting 5 percent in the meantime, as Ben mentioned, is a nice place to be. But I would expect that at least some of that will be redeployed, and maybe Christian can comment on where you see the opportunities in the bond market, either now or maybe prospectively where you might see them.

Christian: Yeah, as we’ve commented, we again took advantage of opportunities in 2020, and we also took advantage of opportunities in 2022, and they were quite different, with the 2020 opportunities being more credit-sensitive and the 2022 opportunities being more sensitive. If we look at the first half of the year, the fixed income positions have mostly been about doing relative value swaps and the opportunistic ad, but not a wholesale change to the portfolio. Zooming out and you know, fixed income holistically, if you had to pick two spots, and this is a broad macro comment, you can find pretty interesting short-term opportunities, especially in structured products, where you’re getting 6 to 8 percent for high-quality paper. I think you’re also paid to take some duration risk, but you want that to be high quality, so think about mortgages, buying those at 80 to 85 cent dollar prices, where you have some good convexity and really positive exposure to interest rate changes. I think, you know, from those are interesting ideas. In terms of credit and credit spreads, not super compelling today. We actually have a 382 spread in high yield, that’s a low tick for the year, which is probably surprising if you don’t look at that every day given the noise you see in the market and the fear that we have broadly in terms of what might be coming down the pipe. So I think the ability to take a lot from there is pretty low, and when things gap out and liquidity gets constrained, that can go easily into the thousands. So, you know, up 30 basis points, you know, out of 700, that’s not a great setup in something that’s gonna push you to be a little bit cautious.

Adam: All right, we’ve got one that just came in. It’s pretty broad and will require you all to get out your crystal balls if you have ’em. But over the next year, what are your thoughts on the total return of stocks versus bonds, and do you think it’s an environment where bonds can outperform stocks?

Brian: I don’t know, I think it depends on which bonds and which stocks, but I’ll say this. When you have an equity portfolio like ours, which is arguably different from the market as a whole, if you look at the U.S. market and you have a PE of somewhere around 20, and the investment income builder PE is less than half of that, then I think we have a pretty good reserve and a starting point of dividends that are pretty competitive with bond yields, as long as those dividends are paid, and I do expect them to be paid. So, if I put a gun to my head, and had to handicap it, I’d say, yeah, I think we’ll get our dividend, and we ought to get a little bit of price appreciation, and for us, one multiple point is about 10 percent of price appreciation, and it’s not crazy to imagine that could go up as high as almost 11 times for this portfolio. So, I hope that answers the question from my perspective.

Christian: I’ll throw in my 2 cents, and for the next year, I don’t know if that’s 6 months or 12 months, but let’s just say it’s the next 6 months, the back half of the year, I’d rather own the agg than the S&P 500. That said, I’d rather own Income Builder over those two and think that can perform even better than both of those things.

Adam: All right, well, I think that’s a pretty good statement to close with there, so why don’t we leave it there today. Everybody, thanks so much for taking the time to join us on the call, and thank you for making it as interactive as it was with the questions. As always, please feel free to reach out to any of us with any follow-up questions. We’re happy to make ourselves available and love talking about the portfolio and why we’re so constructive on it moving forward. So thank you so much.