In this episode, Chris speaks with Paul Drury, tax exempt portfolio manager and head of Putnam’s Municipal Portfolio team.
During the conversation, they touch on many topics, including:
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Consider these risks before investing: Capital gains, if any, are taxed at the federal and, in most cases, state levels. For some investors, investment income may be subject to the federal alternative minimum tax. Income from federally tax-exempt funds may be subject to state and local taxes. Bond investments are subject to interest-rate risk (the risk of bond prices falling if interest rates rise) and credit risk (the risk of an issuer defaulting on interest or principal payments). Bond investments may be more susceptible to downgrades or defaults during economic downturns or other periods of economic stress. Interest-rate risk is generally greater for longer-term bonds, and credit risk is generally greater for below-investment-grade bonds. Unlike bonds, funds that invest in bonds have fees and expenses. The fund may invest significantly in particular segments of the tax-exempt debt market, making it more vulnerable to fluctuations in the values of the securities it holds than a more broadly invested fund. Interest the fund receives might be taxable. The value of investments in the fund’s portfolio may fall or fail to rise over extended periods of time for a variety of reasons, including general economic, political, or financial market conditions; investor sentiment and market perceptions; government actions; geopolitical events or changes; and factors related to a specific issuer, geography, industry, or sector. These and other factors may lead to increased volatility and reduced liquidity in the fund’s portfolio holdings. Our investment techniques, analyses, and judgments may not produce the outcome we intend. The investments we select for the fund may not perform as well as other securities that we do not select for the fund. We, or the fund’s other service providers, may experience disruptions or operating errors that could negatively impact the fund. You can lose money by investing in the fund. The Bloomberg Municipal Bond Index is an unmanaged index of long-term, fixed-rate, investment-grade tax-exempt bonds. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”).
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Putnam Retail Management AD2557752 11/22
Patrick Laffin: Welcome to Putnam Investments Active Insights, a podcast series hosted by Chris Galipeau. Chris is the Senior Market Strategist in the Capital Market Strategies Group at Putnam Investments. Each episode, Chris has an in-depth conversation with a different Putnam portfolio manager to share timely insights on the markets and global economy.
Chris Galipeau: Alright, thanks everybody for joining us. This is Chris Galipeau, your host. And today, our episode is focused on the municipal bond market. And to help us better understand the landscape, we’re joined by Paul Drury. Paul runs the muni desk for us here at Putnam and has been involved in municipal bond investing for the better part of 33 years. Paul joined Putnam in 1989 after earning his BS from Suffolk. Paul’s also a CFA charter holder. So welcome back to the podcast Paul and thanks for taking the time to chat with us. And folks, we were just talking about the last time we had Paul on with us and to me, it seemed like three weeks ago and Paul told me it was over a year ago. So, we’re back, got here and I think this is real good timing. We’ll get right into the questions here but a lot of damage in munis here in 2022 and a rough start to the year in fixed income overall and really a rough start in your space. And, we talk a lot together and when I was getting ready to chat with you today, I was thinking about our conversation in the May-June timeframe, serious risk-off environment. You were telling me, “Hey, I think there’s some opportunity here. I know you took some action.” And so, I wanted to start with that. Maybe if you want, we can even go back to May and June and talk about the dislocation and then we can roll it forward here to September and get your take in the landscape.
Paul Drury: Perfect. Appreciate it Chris. Thanks again for having me back. Hopefully, next time it won’t be 12 months or 14 months. I think you might have lost my number. But no, I appreciate being here today. Yeah, you hit the nail in the head. I mean, 2022 and I think it might even be valuable just to sort of set the table for 2022 as we sit here in early September. It’s really been all about inflation and the Fed. So, sitting down, December of 2021 is we were wrapping up that year, markets were pricing in, Fed funds rate of about 82 basis points by the end of 2022. As we sit here today, the markets are pricing in 3.80% Fed funds rate which is just obviously a massive shift of 300-basis-point shift higher than what the market was just thinking just nine months ago. So this massive Fed pivot essentially to a much more hawkish outlook and so the corresponding tightening that the markets put in has lead to a pretty difficult muni market, right. So 10-year munis up 170 year to date, 30-year munis up 200 basis points to date, credit spread’s wider. Returns, -9%; high yield, -11%-ish. That’s lead to and we’ll talk about it in a little bit, the historic outflows, right. Term 1 returns typically turn negative and rates start to head up. Oftentimes, we see retails are head for the door, $80 billion out of the market is unprecedented. We’ll talk about that. And the Feds essentially told us on multiple occasions, my words not theirs, that they’re going to be data dependent but they’re looking to arrest this inflation. Now, we’ve seen the highest inflation in the generation. We’re starting to see that come down a bit. The most recent CPI was lower than surveys, commodities are down a bit but, again, we’re still in the path. But at this point, and we’ll talk about all the reasons why we think investors need to be thinking about the muni section of the portfolio, is that we’re seeing some opportunities here.
Chris Galipeau: It’s interesting to listen to you go back and talk about the implied Fed funds rate for the end of this year, nine months ago, and where we are now here. It’s been a rough start to the year. I’ve never been a muni manager or analyst but this has got to be a multiple standard deviation move. Awful.
Paul Drury: Absolutely. I mean, if you think about it, the worst annual return in munis since I’ve been in the business, I think our data only goes back to 1992 but that’s a good 30-year history, that should be fairly represented—it was 1994, the 1994 bear market. Again, aggressive Fed was -5%.
Chris Galipeau: Minus 5 or minus 9 here year to date.
Paul Drury: Minus 9. So just to put it in perspective. And we’d only had, over the past 30 years before this year, four periods of negative muni total return. So, there’s been a lot of carnage and so rightfully so, the investors have been concerned, many have left, redeemed the market, right $80 billion out. But at some point and we started thinking that earlier this year and there’s been pockets along the way as you’ve mentioned at the very beginning that when the markets turn, it’s quick. It doesn’t just drag, it happens quickly.
Chris Galipeau: The first cut is the deepest.
Paul Drury: Exactly.
Chris Galipeau: I want to follow on and just talk about the outflow situation. Did you say $50 billion out or $80 billion out?
Paul Drury: Eighty.
Chris Galipeau: So, $80 billion out. What’s that do to you and Garrett and the traders and the analysts. How do you deal with that? That’s for selling, could be from everybody, potentially all the participants and it might not be, probably isn’t a reflection of the underlying fundamentals.
Paul Drury: Exactly. If you think about $80 billion in context. So, $80 billion is about 11%, just to sort of frame how many assets that is, in muni mutual funds. We use muni mutual funds because they are very observable indicator of demand, of retail demand. Remember, munis as an asset class are dominated by retail, 70% of the owners, muni markets are $4 trillion markets, 70% of it is owned by retail whether or not it’s in mutual funds or ETFs, et cetera, et cetera. Closed-end funds, money market funds, direct holdings from mom and pop so to speak. And typically, we get into these cycles. It’s been my experience since the early ‘90s that there’s two reason that typically happens. One is you get this sharp move in higher-end Treasury rates. Muni in Treasury rates are typically fairly, highly correlated for long periods of time, 80% to 90%. That’s generally the reason and sure enough this year is the Fed pivot as we talked about. The second is something that we haven’t seen this year, probably won’t see but who knows, is those times when it’s a muni specific event.
Chris Galipeau: Orange County or something
Paul Drury: Orange County, maybe [North Whitney] or Puerto Rico. Things like that. There’s sort of muni-centric in markets, there’s sort of a tectonic shake going back to 2010, that prediction of entire defaults was wholeheartedly incorrect and we could spend a podcast on that but we won’t.
Chris Galipeau: We could.
Paul Drury: So, a rate spike as we’ve seen typically leads outflows, negative returns, more outflows for selling, wider bid-ask, lower liquidity and for us, I think an important thing is a process, having a sound investment process. Our portfolio managers as you know Chris, because you just came out a little while ago, Garrett and I sit on the desk with the traders, with the analysts. We have peers that have portfolio managers sitting in offices. We have peers that have teams that sit on different floors. Their research analyst might be down one floor. And so, obviously, you have electronic communication, all of our decision makers are on the desk, so having that process there. We got to make sure we stay in front of it. We have cash, we’ve actually pushed our cash up a bit more this year for a couple reasons. One, to manage redemptions but also in case opportunities present themselves, we don’t have to then rush into the market.
Chris Galipeau: Let’s pivot to that. Talk about that. So, one of the things if I were to go back and listen to our podcast chat a year and a half ago, I remember you talking about the fundamentals for states or for governments and you were constructive and you laid out a nice broad case for that. And so fast forward to 2022 and we get high bond vol, high equity vol, with now in your space we’ve got outflows, we’ve got spread widening. And one of the things that you and I talked about in May and into June, I would ping you and say, “Hey, what do you think here?” And, you made me think of it with what you just said about cash and one of the things that we talked to our clients about all the time whether they were on muni money, equity money, fixed money, any money really doesn’t matter. You need to have a process that is repeatable, that doesn’t break under pressure and keeps you unemotional but mostly you’re prepared. So when the opportunity comes knocking on the wrist, “Hey Drury, what are you going to do here.” You don’t have to think. You and Garrett are ready to say that we’re a buyer here for this amount, go. Talk about what happened here in May and June. I don’t want to put words in your mouth but we were talking a lot and you were pretty constructive in taking action. But talk about just a notion of being prepared for this.
Paul Drury: Yeah. I think that’s huge, right. Because look, the muni market is a very large, extremely diffused market that trades a quarter of 1% a day of the holdings. Many of the holdings don’t trade. Just alone, the mutual fund universe has started the year at $1 trillion in assets, might be $900 billion plus, and the counter parties in Wall Street own and operate in the $10 billion to $15 billion range. So having a process, having some cash going into the year and then taking markets where, again, we try to be tactical so there’s times that the market is overpaying us for the risk or overpaying us for a sector or a part of the yield curve or coupon, we want to make sure we’re active. We’re making sure that we’re taking advantage of those opportunities. If you went into the market and you were highly levered, very low credit quality, no cash, super long duration ---
Chris Galipeau: You’re in trouble.
Paul Drury: That’s a difficult position to be in, right? You come into this year and rates were low, spreads were tight. We weren’t over leveraged, we had a little bit more cash, we were up in quality, probably neutral duration. So a lot of it is the seeds that you were sowing before the event, I think is an important byproduct of how that enables you to act in the event.
Chris Galipeau: Absolutely.
Paul Drury: Calm, cool process, taking the long view. On fundamentals, because you brought up fundamentals, I think that’s very important. And fundamentals were—we talked to you last year, fundamentals were solid. Talked to you earlier this year, solid. Talked to you in May, they’re solid. Is there a boogie man? Is there something out there?
Chris Galipeau: The short answer is, not that we see.
Paul Drury: No. And I’ll give you some stats. And all of this is really going to underlie, Chris, and we talked about it maybe a little bit last year. Well, we should really talk a lot about it more now. And that is the combination of the strong US economic growth that we saw post-COVID.
Chris Galipeau: Right.
Paul Drury: Look, the COVID quarter was difficult, right, with unemployment spiking, and the shutdowns and the worst quarter since the Great Depression, et cetera, et cetera, et cetera. But then after that, the economic growth has been terrific. That, plus unprecedented [abandon aid] that’s been estimated to be $1.6 trillion across all of the individual policy packages from the Federal government, $1.6 trillion to muni-centric borrowers [cuffed] by the ARP, the American Rescue Plan, early last year, that we talked about last year. So, tactical actions remain strong up 15% through the first quarter of 2022. Q2 data is lagged a little bit, hasn’t come out yet, should come out shortly. State local rainy day funds, rainy day funds are funds set aside when tax revenues underperform. Municipality set up these called rainy day funds. Pre-COVID, that was about 7% of budget which was, by the way, the largest in the last 30 years. So, going into COVID in terrific shape. That’s now 11%. Defaults remain low in line with historical averages. Remember muni defaults, Chris. You know this as well as I do. Muni defaults are always lower than corporate defaults. Look at all that we have 50 years of default history, always lower and they don’t —they’ve picked up maybe in a few sectors here or there that we monitor closely. And really, to get to the credit fundamentals, I would be remissed if I said, I’m here talking to you today but we are so incredibly fortunate to have a team of six full time muni credit analysts that I think are the best in the business and I think are probably the best in my career at Putnam. They do all of the bottom up credit work for every bond we buy. I’m not just buying the bond or Garrett’s buying the bond and then, “Hey, could you go look at this credit and see if you like it and let me know.” Hopefully, it’s okay which we’ve heard exists in the marketplace.
Chris Galipeau: Not here at Putnam.
Paul Drury: Tremendous work. They also do sector outlook for us. They sit on the trading desk with us as I said. So to answer the long way to your questions, having a process, getting on redemptions were fortunately, when we started talking to folks and we put a blog out as you know, and after Q1 and Q1 was a historically bad quarter in munis. Weakest since I was probably in middle school, that was a long time ago for me Chris, middle school.
Chris Galipeau: You mean no TV, chalk on the blackboards, slapping the erasers together, no cellphones.
Paul Drury: No cellphones. And the markets have—there’s been several months of strong returns and then all the months we will give it back but it should show investors; A, that the market can get cheap enough that they’re supposed to pay attention to it; and B, when it snaps back, markets is not just going to slowly get better over a long periods of time. You need to be in it.
Chris Galipeau: Right. And its one of the things that you and Garrett and your whole team does a very good job of with the help of our fixed income investment strategies team, is getting messaging out to our clients and a lot of times proactively. So, you mentioned into Q1 and we go into a real issue there in Q2. But that’s so important. It’s important for a lot of reasons. Number one of which, there’s not a conversation that I don’t have or Rick or Taylor on our team might have. Everyday, we’re asked about our opinions on munis because every advisor in the country, for the most part, owns munis in the portfolio, right? And so it’s a big part of every FA’s business and when you see dislocations like this, like you mentioned, down nine, down 11 in high yield, historic negative returns leading to outflows. Comments, your opinions on what’s going on, how to manage it from a high-level, what you’re doing are invaluable?
Paul Drury: Well, I appreciate that and I would say a couple of things. Number one is—and I’ve been saying this to my team especially starting in January, but often times when we meet, that the crises-type periods are the times when our investors need us the most. They need our experience, they need our insight, they need all of our mosaics that we’re putting together, the direction, how we feel about the market, all of that that most when the markets are either going up a lot or either going down a lot and so this was the kind of year that we wanted to make sure. We sent the blog out the end of April. We’ve had lots of calls. We continue to talk and we would say to the listener, “Reach out to your Putnam representative, to your regional consultant.” There’s lots of ways, that we’re here, we’re having [lots] of conversations, Chris.
Chris Galipeau: I know you do.
Paul Drury: We’re talking to clients probably more this year than the past few years combined and that makes sense and we’re glad to do it and we’re seeing productive conversations. I think it’s helpful.
Chris Galipeau: It is helpful. I couldn’t agree more. Even in my role as one of the strategists. It’s in periods of dislocation, high vol that creates fear, anxiety, uncertainty, all the storm clouds massing, how should we thing about this? How should we deal with this? Because any portfolio manager/strategist can hold anyone’s hand in a bowl tape, that’s easy but it’s when you go through periods like this year, across all risk assets, and even some that are perceived to be not risky assets, fixed income, that’s where you need to stand up and that’s what it’s all about so I agree with you. I want to shift it here and talk about and we’re going to do this at a high-level, which I know you can’t talk about what’s going on the funds, I respect that. But maybe we could talk about just the national funds and how you have those positioned.
Paul Drury: Sure.
Chris Galipeau: If there are certain sectors you like or certain types of bonds you like. If there’s a duration range you like. Just anything you think is important for, your clients are listening.
Paul Drury: Sure. From a high-level, and I’ve always referred to these sort of high-level factors that has macro factors, but that shouldn't give the appearance that we’re sort of just top down investors and we set, which is long duration and we just look away and we just leave it over. We’ve just done incredibly and leave it. We try to be responsive to opportunities in the markets, so our turnover and the bonds that we buy and the bonds that we sell, that’s going to be based on the opportunities in the market of what the view is overall.
Chris Galipeau: Right.
Paul Drury: And so we try to be—and I know this sounds really hokey, but we try to be sort of a bit of a chameleon and sort of change from time to time, market to market because there’s going to be time when you want to be risk-on, you want to be high grades are very tight. They’re not giving lots of income, lots of opportunities, you want to shift the portfolios and buy more credit. We have the credit expertise, we have the market expertise, we’ve been doing this for a long time. We really try to do that across duration, yield curve, rating, sector because there’s just different markets and you could go back over the last 30 years and say, “These markets, the duration worked here.” Being long duration, being short duration here, right, because if you’re short duration all the time, at some point, when the market rebounds, they’re going to look great during 2022 and then probably going to underperform when the yields peak and start to fall. So, we try to really rotate. Again, that’s the active approach. That’s sort of the active approach that we bring and that’s where we’re most comfortable. So, I’d say duration—we’re at the peer universe to a little bit long duration because we’re seeing more opportunities.
Chris Galipeau: What is the benchmark, just for my edification?
Paul Drury: So, it’s not necessarily the benchmark. We have a benchmark, it’s the Bloomberg Muni Index but what we do is we compare ourselves, our funds, the Putnam funds versus other peer funds in that universe.
Chris Galipeau: Okay.
Paul Drury: So it would be the Putnam national fund against XYZ mutual funds, muni national funds, ABC muni fund and we sort of go through a benchmarking process where we create average fund in that universe, which should allow us if we outperform that average, to outperform Lipper, the Lipper averages can go from there. That sort of a very high-level.
Chris Galipeau: Okay, okay. Alright.
Paul Drury: So, we want to be a little bit longer because longer duration. But what do I mean about a little bit longer, maybe a quarter of a year, maybe half a year longer depending on funds, six-year duration, duration to worst. Yield curve, the very front end of the muni market has actually performed very well and so we’re a little bit more on that longer intermediate. Call it 10, 15, 20-year munis, able to get more spread. When volatility muni strikes and returns turn negative, oftentimes folks run down to the front end of the market. Not to take duration risk.
Chris Galipeau: Right.
Paul Drury: And so, those parts of the market—there’s still return left there. If the market turns around, the Feds start cutting but we see more value being a little bit further out the curve; 10, 15, 20 years average maturity.
Chris Galipeau: I was asked that questions yesterday on a call specifically.
Paul Drury: Yeah.
Chris Galipeau: And I said, “You know, I’m not sure. But luckily, I’m going to talk with Paul tomorrow so I’ll circle back with the answer.”
Paul Drury: Absolutely.
Chris Galipeau: Okay.
Paul Drury: Credit rating, I think we’re still—and we see this, we’ve seen this for a long time. Oftentimes, during a really troublesome markets, where you get into that negative feedback loop of redemptions, fund selling, advisor selling, client selling, negative returns, more selling and oftentimes investors sell the most liquid assets, right. Because A, chances are they’ve outperformed; B, they can get them back; C, there’s more buyers of Triple-A and Double-A bonds than there are single B and non-rated ones.
Chris Galipeau: Sell what you can, not what you want to.
Paul Drury: Exactly. And so oftentimes and we’ve seen that this year in some of the higher quality parts of the market: Double-A, Single-A. Even Single-A have really gotten beaten up and so we’re pointing to those parts of the market, we’re seeing opportunities.
Chris Galipeau: Okay.
Paul Drury: Even int the higher quality parts of the markets. We’re not aggressive sellers of high yield, but we’ve become a little bit more cautious on high yield. Even if you look at our High Yield Fund, it’s not as down in credit quality as it could be because the economy is slowing again. We’re potentially looking at economic slowdown and potentially recession mid-next year, still working with our economist and the rest of the fixed income team here at Putnam, trying to figure out where that’s going. But our spreads, our high yield spreads, and our credit spreads down in the lower end, they’ve widened but they’re not telling. They could widen more depending on the depth or severity of the recession. I’d say sectors: state geos, local geos, higher ed, utilities. Even sectors like charter schools, traditional [high yield] charter schools or elderly housing, things that [have an issue], we’re still seeing opportunity. So, hard to pin it all in one brush, right?
Chris Galipeau: Right.
Paul Drury: Because there’s 40,000 borrowers in munis, it’s extremely diffused. But we’re definitely seeing—and I mentioned cash. Have a little bit more cash than normal for opportunities. And so these opportunities, I mean, if you think about—like I said, rates up 170 to 200, muni ratio is starting to look more attractive especially that long with muni treasury [took] common sort of muni rubric. Spreads a little bit wider. Taxable equivalent yields. If you look back since 2010, taxable equivalent yields touched 6% three other times. Doesn’t happen much. We opened this morning around 580.
Chris Galipeau: What were those other times? I can probably guess them but...
Paul Drury: Thirteen.
Chris Galipeau: Okay.
Paul Drury: Election and COVID.
Chris Galipeau: Okay.
Paul Drury: So, there’s these times where it kind of spikes up there but if you look at—I’m pretty sure we put that in the blog and we can update that because we have something. We have another piece that we’re working on to go out to investors but there’s some opportunity here.
Chris Galipeau: So, you’ve mentioned a little higher than normal cash just roughly. What do you normally carry for cash and where are you now?
Paul Drury: It could be, on any given day, 1% to 2% and we’re probably 4% and 5% in places.
Chris Galipeau: Nothing crazy.
Paul Drury: We don’t go 20% cash or something, right.
Chris Galipeau: Yeah, yeah.
Paul Drury: Because the income part of it is, especially now.
Chris Galipeau: Right.
Paul Drury: Especially now where income is the highest it’s been. The index yield is at a 3.5%. The last time it was that was 2014 so just to give you a sense and most of the time, as you know, most of the time if you look back over market cycles over years and years, income is the primary driver of return in the muni space.
Chris Galipeau: Yeah.
Paul Drury: You’ll have ups and downs. Price, obviously, this year is a down and some years up but for the most part, if you look back sort of that income. So, we were cognizant of having that income because that’s where our clients.
Chris Galipeau: I’m going to hop off to just another topic, but Rick Polsinello—Rick and I work together on the strategy team is in the process, prelim stages of just doing some research on fixed income returns. Whether it’s IG, muni, EM, mortgages, high yield in periods of GDP slowdown on the equity side, EPS degradation, which should probably be consistent with credit spread widening on the fixed side. And so we walked it back as far as we can, 30-ish years on that and what you just said about the income part making up the bulk of the total return and Rick will publish the paper here when he’s finish with it, we’ll share the data with you is eye-popping. And so to your point, I think people get lost about that, that this—I don’t broad brush this but when you have dislocations, when you’re prepared, when you’re ready, when you have cash, when you sell them, my god, I got to sell this stuff. Probably, not in all cases but you might want to reconsider, “Hey, the yield component here is a massive driver of total return and now it’s high.” Assuming there’s no massive degradation of the fundamentals on the surface, which doesn’t seem to be the case.
Paul Drury: No. Exactly, agree.
Chris Galipeau: We’re at a run-up against the time here real quick. So, I want to end it with this, you’ve already given us a lot info, is there anything that we didn’t hit on that you want to draw out or make a point about? Anything that you want Putnam municipal bond investor clients to know from you?
Paul Drury: Sure. I’d say three things. Number one, is volatility could continue. The Fed is not done yet, volatility could continue. But volatility in negative returns, in my experience over 30 plus years at Putnam, are almost always great times to make allocations, that’s number one. Number two, is the muni index yield has risen 230 basis points and the taxable equivalent is at 6%, that allows you in the future that income, that higher income should dampen any price volatility you have. It’s better now than it was January 1. And lastly, although the U.S. economic growth is slowing and obviously, there’s recession fears in 2023 and that seems to be dominating the landscape at least in the press and in conversations about 2023, we continue to believe that—again, as I mentioned and you and I talked about—muni credit fundamentals are sound. States and locals, pre-pandemic were in good shape, they’re in terrific shape, unprecedented strong growth and even during recessionary periods. If you go back to the worse that we’ve seen in my career was obviously the GFC in 2008. If you take all of the tax revenue states, all of the tax revenues are locals and you plotted that over time. During the ‘08, ‘09, ‘10 that total number fell about 5%. So, it’s not like it falls 20% or 30% and remember, on the American Rescue Plan, state and local governments got 15% from the Feds, right, of aid. So, we think looking at 6% taxable equivalent, 3.5% index yield, money is rushed out of the complex, it’s rushed out of the asset class, it creates these opportunities whether it’s maturities, whether it’s sectors, coupons, optionality and those are things that we’re studying. We’re changing the portfolios to enhance income and to give us more price appreciation potential down the road.
Chris Galipeau: Got it. We’re going to leave it there.
Paul Drury: Drinking out of a muni fire hose.
Chris Galipeau: I tell the audience and our clients all the time that Drury has forgotten more about munis than I’ve ever learned. So there we have it, folks. It’s 35 minutes, roughly, on muni landscape. So, I would try and summarize what we talked about and the points you made something like this, always prepared and with a strong and repeatable process and a broad and deep team, you and Garrett at the helm to think around a couple corners. Get ready for slowdown, get ready for spread widening. Prepare for the duration risk that we’ve already seen. Now, into a situation where the fundamentals are good, but they’re better today than the last time you and I spoke a year and a half ago and we’re not expecting a dire recession. This is not a wait, this is not 2000, right. This is kind of garden variety slowdown. Probably, morphs into mild recession. Opportunity set is here. You guys are taking advantage of that and we can’t speak to that specifically but I know that you’ve been working on it for a couple of months and you continue to work on that. Probably the biggest takeaway, I think, for every FA listening and the investors listening is be mindful of the fact that when you have volatility and dislocation, do not forget that opportunity is also presenting itself if you’re prepared. In today’s environment, there’s a lot that we don’t know but we would say from a high-level that yields are high enough that the income stream is probably going to more than offset, the principal lost in that sort of thing. And that holds true, I think, across asset classes too. It’s just not in your space. It’s true in equity space and just any risk asset space that if you are prepared and have your list together, like I know you do, you’re ready to take action. And as you said, the window—it closes very, very quickly and you and I talked through June and you’re active in June and all of a sudden, it was boom and the window shut. So, I think that’s a good takeaway here for everybody here that’s listening, be prepared. Do your homework, be prepared and as long as you’ve done it and your conviction is high and has to be when you’re running billions and billions of dollars, be prepared to take action when you get the opportunity. People like Drury are right there taking action alongside with you. So Paul, thanks. I love it every time we get together. Folks, thanks for listening. We’ll be back with our next podcast on convertible bonds. Have a great day. Thanks for listening.
Patrick Laffin: Thank you for listening to Active Insights. For more information on Putnam, please visit Putnam.com. All opinions expressed by the podcast host or podcast guests are solely their own opinions and do not represent the opinions or views and Putnam Investments or any affiliates. This podcast is not investment advice and is not intended as a recommendation to buy or sell any type of securities. This production is for informational purposes only.