Animal Spirits Podcast - Talk Your Book: Finding Tax Alpha in Fixed Income

Episode Date: August 4, 2025

On this episode of Animal Spirits: Talk Your Book, ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Michael Batnick⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ and ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ben Carlson⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ are joined by Alex Morris of F/m Investments to discuss their new Compoundr ETF Series, diversifying your bonds and more. Find complete show notes on our blogs... Ben Carlson’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠A Wealth of Common Sense⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Michael Batnick’s ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Irrelevant Investor⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ Feel free to shoot us an email at ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠[e-mail]⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ with any feedback, questions, recommendations, or ideas for future topics of conversation. Check out the latest in financial blogger fashion at The Compound shop: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://idontshop.com⁠⁠⁠⁠ Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Ben Carlson are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. See our disclosures here: ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/podcast-youtube-disclosures/⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ The Compound Media, Incorporated, an affiliate of ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠Ritholtz Wealth Management⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠https://ritholtzwealth.com/advertising-disclaimers⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Learn more about your ad choices. Visit megaphone.fm/adchoices

Today's Animal Spirit Talker book is brought to you by FM Investments. Go to FMInvest.com to learn more about their brand new compounder series of ETFs. It provides you big time tax alpha, no dividends. Big league. FMInvest.com. Welcome to Animal Spirits, a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any

investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Welcome to Animal Spirits with Michael and Ben. Michael, our inboxes are full of tax alpha these days, and ETF providers are getting smart to the fact that they can now make changes that make it more tax advantageous because people really care about paying less in taxes. That's right, Ben. And so FFM Investments has this new series, the compounder series,

where I think they told us it comes out August 12th. Sound about right to you? Five days before someone's birthday on this podcast. Not naming names. How old do you turn? 55 almost. Nice. No. So basically the ETF structure just allows you all these different things to do where they can avoid paying out income that you'd have to pay taxes on.

You know, it's funny, I don't want to spoil the episode, but when he told us how they did it, I was like, that's it, but in a good way. It's pretty simple, but it's essentially, you can get this same exposure to bonds without having to eat the dividends or income or whatever it is. So, and pay the taxes on them.

It's a really cool, and this kind of stuff is just going to, there's gonna be more and more of this. So we've talked to Alex before, we talk about a bunch of different things. We get into the Fed and the bond market and short-term T-bills, and we even had a listener question that was very detailed that we get into. So all this different stuff, and they're constantly

tweaking, coming out with new ETFs, and so we always like checking with Alex. he's like the one guy who can make fixed income actually exciting. Right, so here's our talk with Alex Morris from FM Investments. Alex Morris, welcome back to Animal Spirits, it's great to see you, tech trouble's not withstanding. Thought we were gonna agree, we weren't gonna tell

the listeners about my embarrassing five minute romp here. That's why I do ETFs and bonds and whatnot. I don't do tech. Well, I appreciate the belly laugh. So, all right. Balchunas tweeted yesterday something about indie, what did he say? Indie issuer on fire. And I would put you all FM in the indie group and you, like a lot of your peers are on fire.

What is it about this year? Is it like less regulation? What is the unlock that it seems to be like you all are just doing it? If we go back, this all started probably 6-11, right? 2017, sort of like Cambrian explosion of ETFs started. And it took a while for that to take hold. Rates are an interesting place, but we hit this like great nexus where, yes, there was some regulatory reform coming from the SEC,

but there's a need for product. There's now this sense in the market where VIX is low, bond volatility is low. Folks are looking to make a change. And ETFs are the easiest, fastest, now preferred choice of investors to get access to that change. And you notice the change and the fire isn't coming in just one asset class. It's not just the, as Eric would say, boomer candy, buffered ETFs.

It's buffered, it's levered, it's inverse. It's everything. It's single, it's precise things that we're doing. It's new flavors of old ideas, right? It's buffered, it's levered, it's inverse. It's everything. It's single, it's precise things that we're doing. It's new flavors of old ideas, right? It's everything everywhere. But three years ago, this is a $7 trillion industry. It's a $12 trillion industry today. That's a pretty massive jump.

Yeah, we've talked about a lot of these bull markets and different types of strategies. You mentioned the buffers, the option incomes ones are big. The latest trend we're seeing everywhere, and Michael and I are seeing it in our inbox. We're seeing it in client conversations. We're seeing it with prospect conversations. It's tax alpha now.

And I think a lot of issuers have rightly realized that, listen, beating the market is hard and rich people who are the investors in most cases really hate paying taxes. And if you can figure out a way to give them some tax alpha, that is something that a lot of people will perk their ears up to and go, oh, okay, because again, we always say people almost hate paying taxes more than they enjoy making money. And that sounds stupid, but it's true for a lot of people. It's absolutely true. You know, and this is one of those moments where we got to kind of go back to the future. You know, working at a family office group called Fortigent here in DC a long time ago,

when we sold the business off, we were a large user of Parametric and its tax alpha generating beta strategies, which were kind of all the rage. And it kind of fell a little bit out of favor as just everything went up and they seemed to lose some steam. But you know, Brent Sullivan and others have done a great job really commenting on how that works well.

And now folks are looking at, well, I like this theory of saving on taxes that feels good to investors and ETFs, which are easy, can I combine the two? And you're absolutely right. Investors will make ridiculously dumb decisions, myself included from time to time, not even out of not paying taxes, out of the fear that I might have to pay taxes in the future. So if you can remove that fear, you kind of unlock the ability to get the asset allocation you want. And that's what we're looking to do in the compounder series we have.

The fixed income side, fixed income is kind of clunky, just in general to own. ETFs fix a chunk of that, but you still have this income that kind of comes in. And we find in our inbox, what was pretty surprising to us was, hey, we like the way you're doing this. We just don't like the distribution schedule. We're paying you to manage the money. Why are you giving it back to us? We just reinvest. It seems like there's 12 needless transactions a year.

Can you help us with that? And so we're looking to give that tax alpha, tax portability to folks in fixed income by saying you choose how and when to take your distributions. We're not going to give you a taxable distribution throughout the year. You decide when to take your money out, how much to take out, and if you wait 365 days, take long-term capital gains on it and empower investors to be in that choice because we

don't want them to keep making silly decisions because of taxes or the fear of taxes. So you are transforming bond returns into total returns. So you're stripping out the income or you're putting the income back into the product. How does that happen? Exactly what we're doing, right? Folks really want price compounding, particularly long-term investors. So as opposed to buying the underlying bonds, we'll buy some amount of ETF or an ETF in many cases.

And then before it pays its dividend, we'll switch out to a pretty good proxy for it for a few days and then we'll switch back. So we're basically, while many folks are trying to capture a dividend, and they're doing the exact inverse of us, right, they're trying to jump in the day before the dividend, collect the dividend, and hope that it doesn't lose as much in the NAV as they were paid out in dividend.

We're doing the opposite, we're stepping out of the way. So we're the complement to them. So for the div chasers, we're the div avoiders. We don't want the dividend, we just want to see continuous price appreciation in the fund and the distribution power is to the investor then, not us. Because in all fairness, us generating cash, giving it to you, you giving it back to us,

is pretty clunky and investors are out of the market, sometimes up to a week, which feels seemingly unfair for someone who just wants long-term capital appreciation in an asset allocation model without a lot of rebalancing. And the ETF structure is the thing that unlocks this and allows you to do this strategy easily, right? Because there's obviously some turnover involved. So explain how the ETF vehicle

has sort of unlocked a lot of these strategies. So the ETF is known for tax efficiency, right? And I think folks always equated that to, I'm not going to pay capital gains along the way, responding to mutual funds obvious miscue and how they were set up. And so the answer is we just avail ourselves of the same function that does that.

Think of this as an ongoing tax harvest that's happening, but as opposed to taxes, it's an ongoing dividend avoidance strategy, because we just don't want the dividend. We're in it for the capital appreciation, we want assets that that keep going up. So in your bond ETF, every day you get two components. You get the price movement of the bonds

and the accrual from the income that they're gonna pay out. And they pay that income out periodically. We just leave before they make that distribution, because if the distribution is received by our ETF, we have to then make that distribution to the underlying investor. If we don't ever receive it in the first place, we have to then make that distribution to the underlying investor. If we don't ever receive it in the first place, we get what we're looking for, which is price appreciation, and the investor gets what he or she is looking for, price appreciation

and no distribution whenever it was convenient for another ETF issuer. So this is for the people that hold bonds for ballast stability, dry powder, three balance, not for the people that are using the distributions to live. I assume that because you're calling this the compounder series, that there are multiple points of the curve that you are going to be making this available to. Talk about that. It's the eighth wonder of the world, compound interest. We're compounding that up over time.

As opposed to getting a 1099 for all the distributions that you would get, compound interest. And so we're compounding that up over time. So as opposed to getting a 1099 for all the distributions that you would get, you're just leaving it all in the ETF and it will just compound over time. You choose when to take out, how much to take out and your own tax status when that happens. We're gonna go after the major asset classes that today we do little bits and bots in,

but less so than points on the curve. We're gonna go for folks who would otherwise buy the aggregate bond index, so something like AGG or the high yield index where there's a lot of taxable income that we can help compound over a longer period of time. Then you'll watch us step out soon in new filing that we're planning to come out to. Some of the other higher income asset classes that even step beyond traditional fixed income, all of it in that same sense of, if you're buying something for yield, right,

you generally love the yield, yet you're forced to deal with the distribution. How can we disconnect those two so you can enjoy the yield that it gives you, but choose when those distributions happen? So how much of a competition is this to Munis? Like, are you on the Muni fund block right now where it's like the wire and we've got Avon versus Marlowe, right?

Is this like, is this a problem for muni bonds in the future? I don't think so. We still run a big muni practice. Folks love munis because they're their income that you receive today and it's tax free. But munis come with it all sorts of other issues, right? If you look at the broad muni index, its duration is a little longer than you're gonna see in the AG index. There's 25, 27,000 plus issuers.

So buying Munis is really a much more personal state-specific process where you can avoid all income taxes and the code allows for that, but they have different benefits, different liquidity profiles. They're just different. This gives folks who've long times had the option to buy Munis, but still bought different benefits, different liquidity profiles. They're just different. This gives folks who've long times had the option to buy munis, but still bought high yield,

still bought aggregate bonds, still bought something like investment grade like an LQD, where now they can do that. And as opposed to having to shove that away in their IRA or their 401k program, they can now put that in their taxable account and enjoy the same compounding benefits. And now even increase their efficiency because even in your IRA, you're still getting that distribution that's

still inefficient for you and you have to rebalance it. And if you forget to do it, now you're just building up cash. We'll take care of all of that in the same way that benchmarked into simplify ownership of treasuries in this very clean, precise way, but also in this user-friendly, investor-friendly way. That's a good point on the asset location because there's always these rules of thumb about where you should put certain assets, right? Well, these, you know, put REITs and bonds into your tax deferred accounts because that way, you know, they're paying on the income and it simplifies the asset location piece

for people. Exactly. And like I said, taxes cause people to do some pretty wacky things. How do we just stop that? Like we shouldn't be allowing the tax tail to wag the dog at any point. Like we should just allow investors the freedom to put the allocation they need and the investment they want in the account that they use and love the most. And we're trying to provide that.

And we know others are going to come up with more clever and interesting ways. There's some ways that are out there today that, you know, make us a little worried as to how close Icarus is flying to the sun with the tax code. But this is just stock standard ETF practice management, things we've been doing for a long time, things that active management of fund-to-funds have been doing in ETFs for some time,

just now brought to that very clean, very precise exposure to how you want to have access to the fixed income market. It is funny how many people worry about like, well, if they change the tax code on this, I don't know. I feel like we've deregulated everything. And for 30 years, I've heard about how we need to pay more taxes because the debt is too high and taxes just keep falling.

So I think everything's gonna be fair game. It's gonna be Mad Max in the streets and anything, you know, everything goes. If everyone really believed that, at the end of your 1040 form, there is a place where you can make a donation to the government. No one uses it, but practically, you know, the, the ETF was the most powerful force to hit main street investor, perhaps ever, you know, maybe second only to the bank account.

Have you heard of Bitcoin? Yeah, first of all, that's a, that's a different innovation, but you have to, you have to hit everyone in Main Street. No income on Bitcoin. They don't have to worry about paying taxes on yield. Not yet, but we'll see. They'll come in for you. But practically, if we were to start playing around the ETF rules, we've had a hard time

even talking about getting ready to carry the interest, which impacts what? One, 2% of the population. Could you imagine if we went after the super powerful force of the ETF that's made investing really much simpler, more straightforward, better for the average investor? No way. We have an arms. Pitchforks. This idea is so simple, and I mean that in the best way possible.

It is brilliant in its simplicity. So there's no execution risk. Is there? One of the first times we met on the show, so the same thing about T bill. And so far so good. I mean, simple things done well over a long period of time, often proved much more nuanced and difficult than I think folks that see it first and sure. There are some practical realities that have to be taken into account here.

When we move from one ETF to another, you don't want to move the market. We have to move to a substitute. There's 12 D one14 rules around concentration. You don't want to go into something that's a liquid that might have pricing that doesn't work. So although we work with some really smart folks, the former Claymore folks who invented the Bullet Shares series of ETFs that later to Guggenheim and ultimately to Invesco, David Cohen, Matt Patterson, his team, other fixed income innovators, kindred spirits in

this same thing of how do you do the simple things that folks forgot to do. So we're going to ask to make an index. So now you can see how this works. It's not just Armin, it's theirs and you can see exactly what we're about to do. But there's still some investment management that needs to be done because the index may say do this, but practically the fund may not be able to do that, or it might be an unsafe thing to do for investors. And it's our job to step in and decide how do we optimize that equation. practically the fund may not be able to do that, or it might be an unsafe thing to do for investors.

It's our job to step in and decide, how do we optimize that equation? There's some risks. Anytime you're running ETF and you're buying and selling things, you could stuff that up. I think we've got some great portfolio managers and some great things in place to prevent that. The market could respond.

Markets could say, you know what, we're going to align div dates together. Some funds would say, we want to opt out of this. Practically speaking, when other strategies live in this nature of happening, primarily the div capture strategies, the market's done a really great job of spreading things out to give choice. But why would they opt out? I mean, they're getting flows if it works. Some would. I mean, if we get to the high yield space, right, there could be some small funds who say, hey, we don't want these massive flows for a few days or one month in, one month out. So, you know, there's different things for different folks out

there. The largest most liquid funds would be pretty happy for it, you know, but there is some execution risk that we're going to manage and, you know, $8 billion plus of ETFs later, I think we've we're well equipped to do that. But, you know, that's why we have three PMs on each strategy, two traders and folks monitoring this stuff intraday is to make sure that those little pitfalls that might happen are well avoided. One of the tax alpha strategies that's been coming hard and fast into our inbox, and it seems like people are lining up to roll them out these days, is these 351 exchanges. What do you think about that as a vehicle? And what are some of the challenges? Because

at face value, it seems like an amazing deal, but there's more that goes into it than meets the eye once you like dig into the details. Yeah, so 351 is part of that code along with 1031K where you can make these like kind transactions and in its face to make a lot of sense. You know, there's some rules against taking, you need to bring in a diversified basket.

Right, you can't just have one stock, which would be great, but there's rules, right? Yeah, you have to bring in a diversified basket. Right, you can't just have one stock, which would be great, but there's rules, right? Yeah, you have to bring in a diversified basket of securities, because the government doesn't want to give you a free trade, right? They're saying, look, if you bring in a diversified basket and you own by the rules that govern ETFs by default, a diversified basket,

no harm, no foul, we're pretty cool with that. But, you know, now you've got all your basis there. Maybe that basis gets washed out, maybe not. And now what happens, you have to sell the thing. You still have the basis of your stock that you brought into it, or bonds, or whatever assets you brought into the fund. So it's not like it goes away. You're getting a deferral.

And if it turns out that the investment you chose you don't like, you're now stuck. You have to now look for another 351 transfer to do this and the daisy chain goes on. So there's some great parts to it, but you know, and the thing we remind folks about whether it's compounder, whether it was, you know, the beta management, we did a parametric, these things all have to first be good investments, right?

If you're just going from, I don't want to pay taxes, I'm afraid I'm going to go to this thing because I think I might pay less in taxes. That's not a great idea. You have to make sure the thing you're buying is first a great investment and the right investment for you. Otherwise, you're just exchanging one set of problems for a whole new, maybe bigger set of problems.

Sure, you're going to save on some taxes today. You might defer some, you might change the character of some, but if the investment stinks, it stinks. Alex, we got a question from a listener. Since inception in February, the R bill is up 1.5% and the T bill is up 1.7%. I was shocked by this given that the CPI index is up 1.2% year to date, but more importantly, inflation expectations during the year have soared. We all know that the gravy in tips is not what actual inflation is doing.

If you bought a tip that had baked into the price of the assumption of what CPI was going to be in the future, then you didn't get any upside in owning tips. You simply get the real return. So all is equal, tips total return will lag T-bills return because T-bill returns are not inflation adjusted. Here's the weird part. There's a lot in here by the way, so forgive me.

Here's the weird part. One year a lot in here, by the way, so forgive me. Here's the weird part. One-year inflation swaps have soared this year. In February, the one-year inflation swap was 2.9%, it's 3.4%. We would expect that the price of one-year tips should be bid up because of this, but based on the returns I quoted above, they have not. So either the assumption of being built into the one-year or less tips that are being put into the ETF were so good at expecting the one year inflation forward already, or something fishy is going on. I know five months is too early to judge an ETF, but I got to tell you, when I first heard about the R bill, I was thinking, man, this is so good, but now I'm apprehensive. Did you get all that or should I read it again?

This person is very in the weeds here. Yeah, this is impressive. I may need to read that two or three times. The short answer is our bill, if we look at it versus say a six month bill, which is impressive. May need to read that two or three times. So the short answer is our bill, if we look at it versus say a six month bill, which is probably- And remind people that I don't think we said it. This isn't the ultra short tips fund, right?

Ultra short tips, tips, exclusively 13 months or less. Reason why by 13 months, not 12 is a lot of tips fall out of indices when they become 12 months old. So a lot of folks sell them and that sort of 13 months to expiry. So they're very cheap to buy and acquire. What I would challenge the listener, who very clearly has done his or her homework, is to really look at it less to the T bill market and more to the six month bill market, because the average duration of the portfolio is closer to

six months to maturity, or six months, it's called average duration of five on that six month bill, than it is to the actual T bill itself, which would be 90 days or slightly less. And those two track each other pretty closely. You're not gonna get that pure T-bill market because there are some of those swaps in there. Don't forget, many of the bonds we own are nine, 10, maybe 29 years old. So they have some different coupon rates.

So they behave slightly differently day to day. But if they went back and looked at it versus its six month counterpart, which is closer to its average duration, you're going to find they chase each other every day pretty closely. Now, let's also look at our bill itself versus its underlying index, which it's actually beaten its index even net of fees, which is sort of a byproduct of some of the trading and that inefficiency of when these things come in cheap and how we can hold on to them and acquire them there. I would sort of warn folks, once you get into the inflation market, it's rarely exactly

what meets the eye. In general, though, it's run by some, there's a lot of really smart market participants. So it can be priced really, really well. We've had some inflation and inflation expectations have moderated some, they're still high. Inflation has generally been a little soft though. So the inflation expectation numbers as price into longer term swaps was, let's say, a slight miss. But then when you look at the actual shorter term inflation expectations, all of the numbers

came in soft, three, four readings in a row. And despite that, our bill still has a meaningful positive return, like I said, versus six-month chases that thing day for day. Versus the T-bill though, T-bills have just been so profitable as a trade, given there's so much supply of T-bills and that trade sort of has some supply and demand there. And T-bill itself has done a pretty decent job of harvesting some yield in the market, making some great roles and taking advantage of some of the market makers and some of the primary dealers who had excess supply and were willing to sell it to us cheap because they wanted it off their balance sheet.

So there are a couple of factors there, but I think long story short, go back and look at XBIL versus RBIL and I think you'll see the story and that's probably the better comparator. So that question asked about inflation expectations as well. And I don't know if they're using the actual bond market to talk about those inflation expectations or the survey results, because obviously the survey results,

what people think inflation is going to be, are sometimes wildly different. Based on this email, they're probably using the bond market. Okay. I mean, that was a pretty sophisticated email. But is that true that the bond market is, like inflation expectations are rapidly rising? I mean, the swaps market, the break evens and the longer end of the curve have changed a bit,

certainly because of tariff and other noise. But on the super short end, you know, the sort of one year win issue has moved around a bit, you know, less, quarter of the portfolio less is going to be impacted by that, though, much of the portfolio sits much shorter than that, right, six months or less is at least half the book. Talk about how much of a better deal tips are today than they were like I don't know four or five years ago whenever when when real rates were negative and now real rates are are looking much better like tips are in such a better place correct? Tips are in a much better place and the rate story is in a better place. A couple few years ago we were still kind of stimulating inflation right which sounds a little weird but that's what we're trying to do. We were afraid there wouldn't

be enough inflation. Well, then, you know, as Mark Spindel, who was on the show with us before, would say, if we're hungry, we'll eat. Well, inflation was hungry, and we had no choice but to go up to the buffet. And tips were kind of poorly positioned that moment because people thought, great news, inflation is coming in by tips, tips protecting against inflation, it's in the name, right? But when they access those tips, they tended to buy much longer dated tips, which came with duration.

And the last thing you wanna own when rates go up is duration. Well, if inflation's about to go up, rates are gonna go up. If rates are gonna go up, I don't wanna own duration. So there was that mismatch, which is really why we built our bill, give folks the ability to access the tips market without that inflation

So we got a lot of really angry emails from people who said listen I saw the inflation coming and I got crushed in tips because you're right They didn't understand the duration piece that they acted more like bonds than they did Inflation protection when you got smoked in 22 when this happened 21 when this happened The problem is exactly that even though a duration might've only been three or four, didn't sound like much. That way, the outstripped any of the inflation protection. Because early on, inflation took a while to really ramp up.

So you lost it as the Fed, it was a little late to the party, but then when they came in, they came in hard and fast. And that just cannibalized any of the inflation protection those tips could give you. Alex, you mentioned that you all are over $8 billion in ETFs. What are some of the biggest funds that you guys manage?

A T-bill still is the biggest. Folks love that yield of the liquidity of it. Tickers help. And T-bill is a pretty darn good ticker. We see a lot coming into X-bill, which is a six-month bill. And then we see more on the farther end of theill, which is a six month bill. And then, you know, we see more on the farther end of the curve, right? Some of the duration jockeys out there who want, you know,

access to sort of the implied leverage that you get in owning that bond. Michael was buying zero coupon bonds recently, right? Wasn't that a trade for you, Michael? Still holding. Still doing it. Yeah, you like the ride, don't you? Love it.

Gets exciting. It's about to get a lot more exciting. We've seen some action starting to come to our bill, you know current listeners level of detail Which I absolutely love and applaud like reach out to us. We'd love to have that conversation with you But then also, you know, we see some a little bit of bites of action coming into high yield, you know We're starting to see a diversification of where folks are right, you know bond volatility at a you know very low level not all all time low, but low for recent memory. And that generally either keeps people absolutely in place because

they don't want to make a change. It ain't broke. So I fix it. Or other folks say, you know, now's my time and volatility is low to make a switch with low switching costs. And we're starting to see some folks venture into duration and into higher, lower credit ratings than sovereigns. I'm just curious what you think in terms of the narrative surrounding the bond market because I feel like every time bond market yields rise, and we've been in a range, it seems like for, I don't know, a few years now, and call it three to five percent or even four to five percent, but every time rates rise, people go, okay, here we go, bond

market vigilantes, people are worried about the deficit or government spending or the tax bill. And then yields fall and people say, all right, that's it. It's a recession now. It's finally coming. And we just seem to be just bumping along on this range. Like how much do you look to the bond market for signals about the economy? Because it seems like a lot of it just ends up being noise

and it's people's macro thoughts that are being put on the bond market rather than the other way around. The strong signal from the bond market comes when something might go really wrong. We saw that with tariff tantrum where we saw that with the Jay Powell firing attempt 72.5. Yeah, the tariff stuff, that was when I got really nervous is when the bond market, one of those nights, the bond market started getting really funny and the 30-year went crazy. And that was like, okay, if the bond markets, and that's, I think that's obviously what spooked the administration as well.

Oh, absolutely. I mean, I think there were some very clear conversations of the bond market's about to go wacky and it only sounds like a hundred basis points of movement, but boy, oh boy, do you not understand how important that is. So I think the bond market, when it really asserts itself, it still asserts itself. But now, bond market, equity markets also with where the VIX is, everyone's just kind of comfortably numb with all of these sort of input. I mean, sorry, Pink Floyd, for strangling what was a beautiful album there with our

terrible bond talk. But practically speaking, there's not a lot of worry if you look at asset prices and volatility. But if you read the headlines, if you walk outside, there's a lot of angst that somehow the financial markets have been able to dislocate themselves from. And it's a really good question of when does that turn around? You don't know. It doesn't seem like it's set for any time in the immediate to happen, but it is something that is gonna happen at some point and it's gonna happen like a bankruptcy slowly at first and be not being noticed and suddenly and all at once.

Totally get the sentiment I think you're right we just you can't listen to every bit of noise and the ball market is priced at in yesterday we had jay paul came out, looked a little flapped after his tour of taking the president around, and some pretty detailed and pretty hard questions that were given more direct and acerbic answers than usual. And stocks moved around a little bit, not too much. And then we got some great earnings prints after the market closed, and stocks rocketed. The two-year moved around during the press conference, but not an awful lot. I mean, so it seems like the market is well priced in whatever current level of chaos we have plus or minus a trading range and it seems okay with it. And I don't know what you do

at this point to break it out of it. And you know, look, if the S and P is going to keep hitting all time highs and you know, you own the bond at four and three quarters, that's not a bad return profile to get. One of the, I'm curious about the conversations you're having with advisors and investors about diversification and fixed income, because I feel like in the past it used to be just, well, we'll just own the total bond market index or the ag or whatever and call it a day or 10 year treasuries. And I think all of the volatility in the bond market for the past 10 or 15 years has made people wake up to realize like, oh, actually maybe owning some T-bills

as a long-term allocation makes sense because those are very good for rising rates or higher inflation. And maybe I need to be more thoughtful and own some tips for specific durations. What kind of conversations are you having with people in terms of diversifying their fixed income baskets? More or less, I think exactly the line out.

I used to just buy bonds almost indiscriminately, and I had bonds I liked, individual names. Yeah, rates were falling, it didn't matter, right? Exactly. It's just bonds. Let's talk about these sexy equities or options or other things that I have to sell you, right? It wasn't the, how do I think as an investor, how am I making prudent choices there? There's always been a subset of it, it's been super particular, super niche in where they do.

But now it's, those niche conversations are becoming the average. How do I get the diversification? Am I actually getting diversification if I buy, say, the Ag? Like, what am I really getting in there? Am I getting mini exposure, am I not? Am I getting high yield, am I not? How do I get that?

And then what should happen? You know, like, because that brings on the next question, Am I getting in the exposure? Am I not? Am I getting high yield? Am I not? How do I get that? And then what should happen? Because that brings on the next question. What happens when rates start to move and what happens when credit spreads move differently? Because rates and spreads can move, they don't have to move in parallel and they don't have to move inversely. And that's where investors are really starting to ask questions, well, what happens if? Because everyone feels like we know we're on a precipice.

September feels like we're gonna get our first shot starting the race of rates coming down some, and we know asset prices are gonna move. So how do I position myself, and where do I take the most advantage of it, or where do I take the least risk? And ultimately, that's diversification. The other question we get from a lot of folks

sort of counterintuitively is, hey, when do I just sell these bonds and buy equities, and is there any value in buying anything that isn't an equity or a T-bill? And the short answer is, yeah, there's a lot of diversification, benefits that come in owning bonds that aren't either the super safe or, you know, the most, the most high yielding of them that we might otherwise call an equity. And there's a whole chunk in the middle that folks tend to forget about now. And we're really encouraging folks to buy into that middle and hold on to it.

Like we build bonds to go back to 100, right, or 1000 or 10,000, and then reload. So you have to accept this is an ongoing process. This isn't a buy Nvidia and get a meteor ride to the moon. So you are seeing a number of people who are tactically using bonds or cash or T bills or whatever as a way to then go buy the dip on something like April happens. We see some tactical action, but I think perhaps more interesting to long-term investors and advisors is we see folks strategically saying, okay, let's, we need to actually get back into a meaningful diversified long-term bond allocation.

And you know, that's the timing of compounders, not coincidental. As folks do that, we wanna give them a way to do that in the most efficient way possible because bonds do have this great feature called income. The downside is then you got income, you gotta decide what to do with it. How can we help you alleviate that? Because you've made your choice,

you know what you wanna hold, let's do it in the most efficient way possible with the least transactional friction. All right, remind investors and advisors where they can go to learn more about your funds. FMInvest.com has everything you'll need to know. All right. Thanks, Alex. Thanks, guys. Okay. Thanks again to Alex. Remember, check out FMInvest.com to learn more.

Email us, animalspirits, at thecompoundnews.com.