Transcript:

When we think about how much leverage is being used right now by corporates, I reflect on the old saying: “It’s all fun and games until someone loses an eye.”

I think that’s where we are right now in terms of there [being] a ton of leverage on corporate balance sheets, but rates are very low and the expectations are that rates will continue to stay low. If that’s the case, it’s not a problem. But if we have a whiff of inflation, if rates go up a little bit, if the economy slows further, there are going to be companies that are going to be in financial trouble two, three, four years down the road. So, not a problem today, but certainly something that we’re paying a ton of attention to.

In terms of our portfolio, we are intentionally avoiding significant leverage. How do we do that? The great multinationals that have tons of cash on their balance sheet. Much of that cash was freed up in 2018 to come back to the US—companies like MasterCard, like Abbott Labs, like Microsoft.

In aggregate, our portfolio is net cash positive. On an aggregate basis, there is no debt. We like being in that position. Could returns be juiced a little bit by using more debt? Sure. But that introduces risk into the equation, and we’re very happy to not have that risk in the portfolio.

As we think about the remainder of 2019, there are tons of crosscurrents out there. I think when you look at valuations, when you look at sentiment, when you look at the drivers behind economic growth over time, we’re favorably disposed.

All of that said, I’d remind people that, over years and years of history, two-thirds of months are positive but one-third of months are negative. So, in a given year, you should expect four negative months. We’ve seen that with May; we’ve seen that with August. Will there be volatility? Absolutely. Count on it.