富蘭克林資源 (BEN) 2014 Q2 法說會逐字稿

Good afternoon, and welcome to Franklin Resources' earnings conference call for the quarter ended March 31, 2014.

My name is John, and I'll be your conference operator today.

Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties, and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.

These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the risk factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings.

(Operator Instructions)

Now, I'd like to turn the call over to Franklin Resources' CEO, Mr. Greg Johnson.

Mr. Johnson, you may begin.

Hello, and thank you, everyone, for joining the call today.

With me in our studio in San Mateo is Ken Lewis, our CFO.

Before we address any questions you may have regarding the earnings release or 10-Q that we filed this morning, I'd like to make sure that you're all aware of our upcoming investor day in New York on May 22.

Key leaders and investment professionals from across the Franklin Templeton organization are joining us for what should be a very informative day, so hopefully we'll see you there.

If you cannot attend in person, the event will be webcast.

The agenda and registration instructions are available from our website or by contacting Investor Relations.

Now, turning to our quarterly results.

I think overall, we feel that it was a very solid quarter.

Most importantly, investment performance remains strong, and although we did experience heightened redemption activity in certain products and regions during the quarter, pre-market organic asset growth was strong in several other areas.

With that, we'd be happy to answer any questions.

I'd like to ask the operator to open the lines.

(Operator Instructions)

Our first question comes from Bill Katz from Citigroup.

Please go ahead.

Ken, a question for you, perhaps.

Just curious what's driving the increase in the comp.

It's the second half of this year.

And then, what's the outlook as you roll into the new year?

I would characterize it as planned spending, a little bit of headcount.

There's a couple of things on the horizon that might be in the -- I wouldn't say are trends, more of one-offs that may occur.

So just giving a heads-up on that.

But in terms of the general business, there's just a couple of planned initiatives that I thought might -- we think might increase headcount going forward slightly, as I mentioned.

So would you expect it to build off of that, as that as you roll into the new fiscal year?

I don't think so.

I don't think so.

I think after kind of initial increase in the next two quarters, it should level out.

Okay.

My follow-up question is just on the Global Bond outflows this quarter, could you perhaps give us a sense of what happened as the quarter progressed, and where you're seeing the deepest rate of attrition?

The second part of the question is, do you need to crank up the ad spend to get the gross sales to accelerate?

I wish it was that easy regarding the ad spend.

I think if you look at the progression and redemptions, and clearly that area's been under pressure, I think first of all, just looking where the majority of the assets came in, in Europe, and a lot of money as a safe harbor was going to the Global Bonds, and then when you had European equities take off, you had a reallocation.

I think that's more of a shorter term trend in pressure where people are now investing in European equities, especially Europeans.

So that puts a near-term pressure.

I think for the quarter, the heightened redemptions were around the Ukraine situation, and having some exposure, we don't think very much, I mean, certainly 3%, 4% is well-diversified risk for the Fund.

But I think any time you have that kind of headline risk in a Fund, that can lead to some redemptions, as well.

The redemptions were clearly higher earlier in the quarter, and we feel like as we're progressing in a newer quarter, that trend is certainly improving.

And just also add that if you look at the US versus the SICAV Fund, it really has been concentrated around the SICAV Fund, where you have more concentration with gate keepers and probably heavier portfolio allocations to individual investors, that own them for a very different set of reasons.

With the question of the Euro at the time, and problems overall in Europe.

Got you.

Okay.

Thank you.

Our next question comes from Michael Kim from Sandler O'Neill.

Please go ahead.

First, just to follow-up on the Global Bond Fund, just given sort of the volatility across the FX markets, and the impact that's had on the returns for the Global Bond Fund, I know that longer-term track records remain strong, but do you feel like the recent performance pressures maybe make it a bit harder to differentiate that Fund in this type of environment?

Well, I think any time you have equity markets that are as strong as they have been, that's going to put pressure on this type of Fund.

Again, how sustainable is that going forward?

I think that's the question.

And with regard to shorter-term performance, this Fund is positioned for rising rates, and if you look at the year-to-date, anybody with longer duration which is our peer group in the global bond area, has had the benefit of rates declining.

So that's put some near term pressure, but performance looks really fine from a standpoint of currencies and its allocation.

So we feel good about it, and you're always going to have under or over in the short term, but the underperformance is very small, and most of that's due to, as I said, to duration of the Fund.

Got it.

And then second question, just seems like one of the themes that may be emerging across the institutional equities landscape is just rising demand for more concentrated equities strategies.

So just wondering if, to what extent you might be seeing signs of that trend, and then which of your strategies might be in a position to capitalize on institutions looking for higher alpha -type products?

Well, I think that's been characteristic of a lot of our different funds that have concentration.

Certainly you can look at, an example, our Asia Growth Fund and our UK [Tenant] Fund which are concentrated -- more concentrated portfolios.

So we think that trend, as an active manager, that making bigger bets does ultimately make sense.

It's going to create more volatility versus the index in the shorter run.

Again, for institutions that understand that and have a longer-term perspective, I think that trend should continue.

Okay.

Thanks for taking my questions.

Our next question comes from Chris Harris from Wells Fargo.

Please go ahead.

Greg, just want to follow up on that first question that you answered, regarding the global bond redemptions.

Is it possible to quantify how much of those redemptions were coming from European investors moving up the risk curve a bit, versus how much is coming from issues surrounding Ukraine, and maybe China slowing down?

No, I mean, it's really difficult.

I think we just do our best job, but I think if you look at the Global Bond Fund in the US, it didn't experience anywhere near the redemptions of the fund, that primarily has been distributed to Europeans.

So very different set of reasons and issues, I think, on each side.

But clearly, the Global Bond and Total Return represented about $8 billion of outflows from our SICAV Fund, and the US one had just about $0.5 billion in total outflows, and that's a similar size fund.

So you can see just how different the reasons are, and the same set of issues, I think if performance was an issue, or Ukraine was an issue, you would think it would hit both.

I really think it's more about, you had heavier allocation for a different set of reasons for the average investor, and now they're much more comfortable with more of a risk on view of Europe than they had before.

Okay.

That's an interesting point.

Okay.

Follow-up question then on the US equity side of the business.

Obviously, a great quarter for you.

Really surprised at how strong it really was.

And so just wondering whether this quarter had any kind of one-offs that might affect the growth.

I assume seasonality had some impact.

And then more broadly, based on the trend you are seeing in that part of your franchise, do you think this rate of growth is sustainable?

I think it really was the highlight of the quarter.

When you look at gross sales at $8.2 billion in US equities, and that's been a big push for the firm to build awareness and distribution on the US equity side, there really were no one-offs as far as large institutional mandates that were funded during the quarter, so most of that was through the traditional mutual funds.

I think the only -- I think $2.6 billion in net flows, overall gross up 35%, I think the only concern would be that one of our best sellers was biotech, which has been somewhat under pressure more recently.

But everything else, you go right down the line, US Opportunities Fund, Rising Dividend Fund, all have been strong drivers of growth, and I think that will continue.

Great.

Thanks a lot.

Our next question comes from Ken Worthington from JPMorgan.

Please go ahead.

Okay.

This is sort of a follow-up on the last question.

So in domestic equities, can you flesh out more, so you mentioned biotech in terms of -- and rising dividends.

But as we look at the publicly available data, the strengths seem to be bigger than we would have been able to maybe figure out on our own.

So was there something beyond just the funds, or maybe it's coming out of the SICAV products as well?

So any more color you could share in terms of products and distribution would help me.

Thank you.

The only thing I can think of is that exchanges somehow could come into that number, and may be more difficult to model, but I'm not really sure why that you would have trouble figuring that out.

It's really the SICAV has been the bigger driver with US growth and biotech, in terms of flows, versus the US funds.

Got it.

Okay.

Thank you.

And then in terms of K2, what should we be expecting here for the next quarter or two in terms of performance fees?

If you could help us with the outlook there, that would be great.

Thanks.

I think if you remember back last quarter, we had -- I think it was somewhere in the $20 millions of performance fees.

So in order of magnitude, in the June quarter, I think you're talking about, I don't know, 20% of that number maybe, or a quarter of that number.

Tiny.

As a fair estimate.

Great.

Thank you very much.

Our next question comes from Robert Lee from KBW.

Please go ahead.

Maybe going to the balance sheet and capital a little bit, in the past, you have taken on some debt here or there, which partially funded some special dividends and share repurchases, and clearly it would seem that you have more capacity to do that.

So could you maybe just comment a little bit on maybe what are some of the -- in order for you to be comfortable doing that, if that's a possibility, what are some of the metrics that you would take into consideration, or are there specific leverage ratios or credit ratings that you're focused on, that put a governor on your willingness to maybe put a little more debt on, to return a little bit more capital?

Yes.

So I think we got a similar question on this last quarter as well.

There's no reluctance to take on debt, I would say.

We don't have any plans to do so, either.

But I think we continue our practice in the past, look at the overall debt ratio, look at the maturities of debt coming up, look at the interest rate environment and forecasts, and just be opportunistic, like we've been in the past.

I think also out of current cash flow generation, we have the ability to be flexible on the capital management side.

The Board does look at the pay-out ratio that we've been putting in our earnings reports, and that's why we put it there.

And also the total shareholder return of the stock would be the kind of two overriding metrics.

Okay.

And Greg, I was just curious, you talked -- mentioned in Europe, seeing better demand in the marketplace for equity strategies, and that's coming somewhat at the expense of maybe Global Bond.

But can you maybe talk a little about how you feel about your positioning in Europe from an equities perspective?

Clearly, you built the big SICAV, fixed income products, but given that you still have some modest outflows from Global Equity Strategies, do you feel like you're getting your fair share of that movement in Europe from fixed to equities?

Is that -- what's the strategy there to pick off more of that flow?

I would argue that, if you look at the world, Europe is probably our best market for equities overall.

Where if you look at the European Growth Fund, the Mutual European Fund, these are all our top-selling funds, and it's really due to European distribution.

So as a percentage, it's heavier.

The drag in Europe's been -- over the last quarter or two has been the Asian growth, which again is not the US equity, but in our overall equity number, and that's been the third-highest level of outflows for any fund.

But the good news is that the performance is doing better there short-term, and we had some pension redemptions in Latin America that hold that fund, but we think that's subsided as well.

Overall, Europe, probably the strongest shelf space and distribution position for us for equities than any other region.

Rob, if I could just chime in too.

I know you asked about equities, but it just made me remember.

We've been experiencing a pretty positive trend on the Franklin Income Fund and the SICAV products, too, over the last year.

That might be kind of an indicator of investors taking on more risk, and then, as Greg mentioned, we had some strong equity showings as well.

Great.

That's helpful.

Thanks for taking my questions.

Our next question comes from Craig Siegenthaler from Credit Suisse.

Please go ahead.

Can you update us on how much cash sits outside of the US right now, and also your estimate of how much free cash flow you're getting from your businesses outside of the US?

The cash flow generated, it's about the 50% range, that's the generation part.

I think it's in our filing, but I feel like the number's 60% non-US.

Okay.

So 60% of current balance sheet.

Right.

When you're looking at net income is probably a decent proxy for cash flow, and we're generating about 50/50.

Got it.

And given no plans for a tax repatriation holiday on the horizon, what is your plan to do with the cash that sits outside of the US right now, and also the future free cash flow you're generating over the next few years here?

I think the cash is there to reinvest in the offshore business, and that's going to -- we're going to continue our practice there.

And as you know, all of the capital management activity, as well as income taxes and all that, come out of the corporate holding company, the US holding company.

But there's a lot of cash being generated there, as I mentioned, 50% of the income, which keeps growing, so I think we have a lot of flexibility to do both fund our international growth, as well as meet our capital policy requirements.

And Ken, one more question.

Do you have the CapEx number for just reinvestment in international businesses on, let's say, the last 12 months?

Yes, I don't have that number.

I don't have that number, but we made small acquisitions and we'll continue to do that.

I'm getting a little feedback on the mic, but I don't have that number handy.

Okay.

All right.

Great.

Thanks for taking my questions.

Our next question comes from Dan Fannon from Jefferies.

Please go ahead.

I guess Ken, just following up on your comments about the salaries and benefits, and where you're hiring or hiring picking up, could you talk about the regions or the areas which that hiring will take place?

And then any other color on any of the other expense line items for the rest of -- the remainder of the year?

I think in general, the planned expenditures relate to portfolio, and also some distribution, expanding our global footprint through distribution.

That would be the focus of it.

The business grows.

We continued to support it.

But remember, that from a back office perspective, we have those low-cost jurisdictions so it doesn't impact the comp line that much.

And in general, I think the only other area that we're seeing increased spending is on the technology side.

So I don't think it will be a lot, but maybe another 1%.

Okay.

And then just in terms of the redemption trends, Greg, you mentioned in hybrid there were some one-off outflows and then obviously international being the area where redemptions picked up.

Can you talk about specific regions outside the US, that might have been more elevated than others?

Within hybrid?

Hybrid specifically, but those outflows, and then just generally for the rest of the buckets, in international.

Yes.

I mean, the hybrid, the couple factors that I think affected the quarterly flows.

One, we had two -- or actually two separate accounts but all related to one client that -- with K2, that was close to $1 billion that we previously announced, and that affected the quarter, and hit the hybrid number.

So that was a one-time lower fee $1 billion effect.

The other was a large -- one of our large distributors.

In their model -- and they had a very significant exposure, the Franklin Income Fund reduced that exposure, and that affected -- it hit some exchanges as well under the Balanced Fund, but just because of the high yield exposure.

They reallocated that, and that resulted in what we think is, again, a one-time quarterly pressure, because the underlying strength for hybrid in the Income Fund continues to be very good.

And actually this quarter, with rates declining year-to-date, that fund did even better, and is back to being top in every period.

So it has continued momentum.

As I mentioned, the only trend around redemptions I think of note, Asia-Pacific was actually -- did very well for the quarter.

It was really Europe and focused on the three funds.

It was the Global Bond, Total Return and Asian Growth, and everything else would have been a great story, especially on the equity side.

But those three have been under pressure.

They're under pressure in Europe and that's where most of those assets were raised.

So that's really the only one to highlight.

Great.

Thank you.

Our next question comes from Michael Carrier from Bank of America-Merrill Lynch.

Please go ahead.

Ken, maybe just a couple of number things.

So I hear you on comp, in terms of the outlook.

Just when we think about the current environment, whether it's on the flows or the market backdrop, I guess, when you factor in the outlook on headcount versus that, is there any change, or are you just saying the 1%, based on hiring needs, but then obviously, there's variability in the operating environment?

Yes, I think there's variability in the timing.

That's why it's little squishy there.

But generally, we think -- when we have talked a few quarters ago, we talked about keeping expenses in the low single digits range, and I think we're sticking with that.

It's just that there's a lot of planned expenditures and if the business environment supports it, we'll go through with those plans.

But it's something that we have ultimate flexibility on.

Okay.

Got it.

And then two other items, which I know they are always hard to predict, and they move around, but just wanted to get your sense on the non-controlling interest, just seemed like it was more of a positive this quarter, and then the tax rate was on the opposite side, meaning a little bit of a headwind.

So anything in terms of the outlook on either those items?

Obviously they move around a lot, but any color?

Yes, the non-controlling interests, and all of the activity in non-operating income related to sponsored investment products and VIEs, that's really hard for us to predict.

We tried to give you some color as to where -- all that's related to our seed money basically and investments, so we tried to give you some color in our filings about what those -- what categories those investments are in.

But I sympathize with your task of trying to project that line item.

In terms of the tax expense, we're still feeling that we're in the kind of 29.5% to 30% range.

Okay.

Thanks.

It's a factor of mix too, but based on our current projections, that's our position.

Okay.

Thanks a lot.

Our next question comes from Brennan Hawken from UBS.

Please go ahead.

First, just a question quickly, I think you highlighted in your prerecorded comments that in the muni funds, there was some relief in the outflows in March, and was just curious if you saw that carrying through to April, or if that was -- if that appeared to just be a March phenomenon?

We don't disclose flows because -- and I think one of the reasons for that is we don't disclose flows intra-quarter, because it's pretty short term, and things can change.

But all of the -- let's put it this way.

All of the commentary that we've made, we do see that continuing, in terms of decreased redemptions in muni bonds and some of the other products that Greg was talking about.

I would just add that I think it's encouraging that the gross sales were up over 20% quarter over quarter, and certainly with Puerto Rico having a strong offering and strong demand, that helped the market.

But overall, really, the intermediate to shorter term is where you're seeing strong in-flows and that's the same for us, the Fed intermediate's been the strong one.

I think any longer duration are still going to be under a little bit of pressure, but certainly a lot better than where they were a quarter ago.

Terrific.

Thanks for that color.

And then another one on capital.

You all mentioned, and you highlighted a couple times in answering Craig's and Rob's question that -- and you mentioned in the pre-recorded comments that 50% of earnings in the US is there to support dividends and buybacks.

Is that a way to adjust and make us think about a 50% of earnings payout ratio, as opposed to the 60% to 65% ratio that you targeted in the middle of last year?

No, I don't think that changes.

I think using the word targeting is even a little bit strong, but that's been our historical rate, and I think we're -- we realize that, and we realize that's where the expectations are, and if we were going to change it, I think we would transmit that well in advance.

So there's really no change there.

I don't think you should imply that there would be a change from the 50/50 comment.

We'll continue to be opportunistic, and obviously just it's a function of a lot of things, including the market.

But regarding the international, there was a question earlier on CapEx and -- but really I think one of the largest uses of our offshore cash is product development and seeding new products.

We have a lot of offshore cash in new products that are sold around the world to generate a track record for that.

So in our mind it's R&D, international R&D that we're using a lot of that balance sheet for.

Thanks for the color.

Our next question comes from Douglas Sipkin from Susquehanna.

Please go ahead.

I hate to beat a dead horse, but I think it's an important topic for you, particularly in light of what your comments on the last question.

I guess I'm just trying to reconcile -- you haven't changed the target at all.

The last two quarters it's well below the target.

I guess what am I missing?

Because either -- at least from my vantage point, either you're cautious on the markets and that's what I'm reading, or maybe there's a strategic opportunity that no one seems to be picking up.

Just looking at the trailing payout ratios versus your guidance.

So maybe you could shed a little bit more light on that.

I apologize if it's repetitive, but it's definitely, I think, a good topic for you, one that matters a lot.

So on the previous targets, it's a rolling 12 months.

So a while back, we had a special dividend and that rolled off.

That's where you really see the decrease happen.

The special dividend at that time was primarily tax-driven.

There was tax reasons to do that, and that was a special dividend, and there wasn't a special dividend this year, so you see that.

The other factor is, in the first quarter of this year, the markets were on a pretty good run, and we just felt we scaled back the share repurchase because of the overall macro environment, but then pulled back in January, and that's why you saw this quarter, we stepped it up, probably about a third over the previous quarter.

Got you.

So I guess then just interpreting those comments, it feels like maybe the stock's at a place where you would be more aggressive?

Well, I think it's a function of a lot of things, including the overall market.

So we're in there on a regular basis, assessing the market and what opportunities are available.

So it's kind of a day by day thing.

Got you.

Okay.

Thank you for your patience with this matter.

Our next question comes from Eric Berg from RBC Capital Markets.

Please go ahead.

I think in response to earlier questions, you indicated that your global equity business had a number of pluses and minuses to it, with the end number obviously being a minus $1.2 billion.

Would you mind going over a little bit more slowly, where the strength was?

I believe you indicated it was in Europe.

If you could go over the funds that enjoyed inflows versus those that enjoyed outflows, leading to the net outflow, please?

The areas of strength within global equities would be our European Growth Fund, which is managed by one of -- our local management asset team in Europe.

Our mutual global discovery is another one that has done well in terms of net flows.

The Templeton side, I wouldn't say dramatic changes one way or another, as far as flows, and more even on a net basis.

The pressure was really, as I said earlier, the Asian growth fund, which is -- had about $1.9 billion in outflows, and that's had tremendous long-term performance, but it is a more concentrated portfolio, and obviously with pressure on emerging markets and some of the Fed tapering issues, those currencies and things in some of those places got hit during the quarter.

And as I said earlier in the call, we had some rebalancing or partial redemptions of some large institutional accounts from Latin America, that we hope are one-time hits and the recent performance has been very strong over the last three months.

But that would be the summary in general on global equities.

So my second question is really a follow-up to the first.

As we look to the June quarter, obviously you can't get into the details of what the flows look like, but conceptually would you -- is it right to be thinking of an improvement, a significant improvement in these very substantial outflows from the global fixed income area, and at the same time, getting more help than you got in the quarter, just reported from the global equity business, directionally?

Is that --?

It's early, and why we are so careful because you know you how quickly a headline can come out or something could change that could affect the quarterly flows.

As I indicated earlier, I think some of the headline risk that affected some of those other funds appears to have moved that type of money out, and hopefully that is slowing down, and we're seeing that, and I hope that trend continues.

But I think you're right, if I indicated, we think they're one-time quarterly effects on things, then that would mean in a normal environment, it should be better.

Thank you.

Very helpful.

Our next question comes from Marc Irizarry from Goldman Sachs.

Please go ahead.

Greg, can you give us an update on K2, and maybe some of the new initiatives on the product side, around the alternatives opportunity for you?

Yes, I think the first goal is to introduce a retail 40 Act fund, and that took a lot of work to get that done, as we've said on previous calls.

I think as far as distribution, we're now on 45 platforms, so that was an undertaking as well, and I think we're near $380 million, $350 million, somewhere in that range, in those funds.

But it really hasn't -- the new platforms were kind of the key ones, the bigger broker dealers out there, that specialize and have mandates to increase an alternative.

I think that side of it and the integration with people continues to go very well, with the teams, so we're still very optimistic.

I don't have any -- We're also very careful about setting a forecast, or what is our expectation.

I think it's to get the awareness out there and educate about the capabilities, and then we see where that goes.

But I think all of the trends around looking for alternatives, setting specific goals, and this being one that people are pretty comfortable with, we're still pretty optimistic on the retail side.

And also following the launch of the US version of that fund, the Trust Board of SICAV version of that fund is in the works, probably being launched sometime in the fall.

Okay.

Just on hybrid, you may have mentioned this, Greg, but the uptick in gross sales during the quarter.

Can you give a sense maybe where that's coming, where those -- some of the sources of strength there, in terms of the uptick in hybrid and new?

Is that something also that you're seeing as maybe more sustainable in the environment that we're in?

I think there's a lot of factors.

One, we mentioned earlier that the SICAV version of our Franklin Income Fund is starting to get traction, and we had about $300 million in net inflows going into that one.

Also, just the strength of our Flagship Income Fund has contributed.

And then some of the redemptions in other areas have gone into the hybrid funds, where there was -- whether it's global bonds, others that we've seen, exchanges moving into more of the balanced funds, and that affects the overall gross and hybrid.

So we think that's a trend that will continue, and especially the fear of rates rising, and having a different type of exposure to that, will also contribute to more balanced hybrid funds.

Okay.

And then I know it's tough to get too much color around this, but just in terms of the seed, your seed portfolio and non-op gains, how should we think about what we saw this quarter, and maybe what the book looks like today, and what the non-op, how we should think about non-op for you?

Yes, I think the best thing, the thing that we can do too, is you just kind of look to see, generally speaking, so a lot of that is our trading investments, you look to see what categories our trading investments are in.

As we go through the quarter, if it's global equity or if it's fixed income markets, you can kind of get some feel for where that line will be.

It gets a little more complicated because as funds get successful, we'll deconsolidate the fund, so that stuff's a little harder to predict, even for us.

So there's always going to be a margin of error for that, but at least in our filing, we show you where the money's invested.

It hasn't really changed that much in terms of composition by investment objective, over the last few quarters.

Very helpful.

Thanks.

Our next question comes from Glenn Schorr from ISI.

Please go ahead.

I guess a two-parter on performance.

Flipping through the Q, I noticed a pretty material improvement in the one-year performance in both hybrid and in fixed income, so much so, that I guess my question is, one, was there a roll-off of a tough period four quarters ago, because the improvement is significant, and two, given that significant improvement, does that change your nearer-term ability to cross-sell, or to sell through both hybrid and tax free, just on these better results?

Because they are much better.

Well, I think that -- I did mention earlier that Franklin Income Fund is the driver for us for hybrid flows, it's a $90 billion fund in the US, and it was lagging, I think last quarter, and the difference is rates have dropped.

That has more longer-term duration than its typical category.

So what rates do are going to drive that fund's performance, especially with exposure to groups like utilities that had underperformed a quarter or two ago.

That will drive the shorter-term numbers.

It was just a better recent number, it's not -- there was nothing unusual or dropping off of prior quarter.

It was just rates go down, that one tends to do better than its category, because it does have a higher yield than other hybrid type funds in its category.

I think last quarter it was below the second quartile just by a little bit.

Just below, right.

Just below.

But tax free is a little bit different story?

Tax free is for us, again, it's really a function of duration, and because we position ours for lower volatility, higher tax free income, when rates drop, we tend to underperform in the short run, but because we have lower fees, we tend to do fine, in the longer term, and we find that area -- if I have to wait, total return is less important than certainly equities, as far as how our market looks at them.

Our market is buying them more for stability and current income than they are trying to get an extra 20 or 30 basis points of total return.

Okay.

Appreciate it.

We have no further questions at this time.

Okay.

Well, thank you everyone for participating on the call, and we look forward to seeing many of you on May 22, in New York.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.