This Investing Pro Delivers a 5.5% Yield With Low Volatility. Here Are His Secrets.

The Franklin Income fund’s leader has a strategy that shines in volatile times.

Ed Perks, chief investment officer of Franklin Income Investors (PHOTOGRAPH BY COLE WILSON)

Ed Perks, chief investment officer of Franklin Income Investors, has that rare LinkedIn profile that lists only one employer in a long career— Franklin Templeton, 33 years to present. Perks joined Franklin in 1992, the year he graduated from college, and has been at the helm of the 77-year-old, $73 billion in assets Franklin Income fund since 2002.

His stable, consistent career fits the investment strategy of the fund he leads, which invests in both stocks and bonds and focuses on providing consistently high monthly income to shareholders. His team also manages another $20 billion in related strategies, including an exchange-traded version of the fund, Franklin Income Focus ETF.

Franklin Income is up about 5% this year, beating both stocks and bonds, and has returned an average 9% a year for the past five years, according to Morningstar. It really stands out in tougher times: In 2022 it fell just 5.6% compared with the S&P 500’s 18% loss and the bond market’s 13% decline. We spoke with Perks about why the strategy can outperform in volatile markets and some of his best stock and bond ideas. An edited version of the conversation follows.

Barron’s**: Your fund is having a great year, including a 5.5% yield. What’s behind it?**

Ed Perks: First, on the equity side, the market has broadened from the very narrow market in 2023 and 2024, which was led by Magnificent Seven stocks with high valuations. Now we’re transitioning to a market that is more dependent on the delivery of earnings growth, and we may see more modest returns. That puts more of a focus on the role income can play in total return for stocks.

When you flip to the income side, we went through a decade of very low yields and then, in 2022, a rise in rates that rippled through different high-quality bonds, including agency and corporate bonds. Ahead of the rate rise, we had decreased our allocation to bonds to about 25% of the fund [bond prices move inversely to rates], but now our fixed income is back up to around 50% at these higher yield levels. In a volatile market, I think investors appreciate the role a more balanced strategy can play in generating consistent long-term returns with less volatility.

Why have you now gone back to a 50-50 allocation?

In a normal market environment, we aim to be 50% fixed income and 50% equity, but we bring flexibility to how we allocate assets. Right now we see the risks in equities, credit, and interest rates as balanced. The Federal Reserve has paused on cutting rates and there is still a lot of uncertainty, but I think the economy can avoid recession and companies are still capable of generating earnings growth.

What are some moves you’re making in the portfolio now?

In corporate credit, there was a shock in April, but spreads [the difference in yield between a corporate bond and a Treasury] quickly recovered and now they back to being close to their historic lows. We’re selectively looking at areas to take profits and roll into agency mortgage-backed securities, which are attractive on a yield basis. That includes bonds issued by Ginnie Mae [Government National Mortgage Association], as well as Fannie Mae and Freddie Mac.

One of the stocks we like feels very historic: the utility Southern Co. It has been in our portfolio since back in 2002 and has had strong performance over that time. It hasn’t done great over the past decade, but it has a great opportunity going forward, given the acceleration in power needed to build out data centers. The stock yields about 3.3%. We have seven million shares in the fund and hold debt securities and convertible securities. It makes up about 1.25% in aggregate in the fund.

Do you often hold stocks and bonds issued by the same companies?

Yes, that is fairly typical. We don’t just look across markets to find individual companies; we also look across the capital structure to see where we can find the best opportunities.

Texas Instruments is an example. We own the stock and three equity-linked notes, which offer price appreciation and generate income for the strategy. That stock is also about 1.25% of the fund. You might not think a fund with our strategy would own tech, but we see a good path forward for this company.

Do you worry about tariffs?

That is one risk, and it’s a very difficult one to predict. There is a lot of uncertainty around what tariff increases could mean for individual companies, but also what they will mean for U.S. and global economic growth. But the largest and strongest players will have the greatest ability to adapt to whatever does happen with tariffs. And Texas Instruments, with a leadership position in analog semiconductors, has a good forward path.

What’s another stock investors might not expect you to be adding now?

One of the stocks that we recently added is PepsiCo. Expectations are very low in the stock, yet it’s still a dominant global player and it’s at a cheap valuation. The dividend yield is 4.42%, so we get paid to wait until it gets on a better track.

Part of being an income investor is often to be a little bit contrarian and think about where long-term value is and where you can get paid to wait.

Perhaps not PepsiCo, but dividend stocks are attracting more interest this year.

They tend to fall off the radar in periods like 2023 and 2024, but in 2025 we’ve seen a shift back to companies that have a strong, sustainable, attractive dividend yield since they can outperform in periods of volatility.

I get the feeling that an income strategy suits your temperament, as well as current market conditions.

As a portfolio manager, you need to be comfortable with the strategy and it has to match your investing DNA. For me, income does that. I have colleagues who manage growth strategies and I can tell you, that is not a comfortable position for me.

When I first became a portfolio manager in 1997, it was in convertible securities. It really opened my perspective from just covering equities to understanding credit, valuing convertibles, and understanding options market volatility. That was a tremendous learning experience and opportunity for me, and I managed that fund for the following five years. Then I joined Charlie Johnson [the chief executive officer of Franklin Templeton Investments from 1957 to 2004] on the Franklin income strategies, and that was a very significant event in my career.

Here’s the thing with convertibles: You look for opportunities that are asymmetrically skewed in favor of the investor [meaning investors stand to gain more than they are likely to lose], and that is something that income naturally provides. The income stream is a buffer to market downside and it’s additive when markets rise. That can lead to solid long-term returns.

Can you tell me more about your background?

I grew up in Levittown, on Long Island, and my dad was a firefighter in Brooklyn. My brother is a Nassau County police officer. I went to Yale University, where I was a place-kicker on the football team for four years.

After I graduated, I took a leap of faith to try something different from my background. I decided to move to San Francisco, which had a robust financial-services sector. I wanted to get into investment research, and I joined Franklin at a time of rapid growth in our industry. I had the opportunity to cover a lot of different sectors and explore a lot of different areas.

We created Franklin Income Investors in 2022, and I became the chief investment officer when we wanted to deliver our income strategy in a range of vehicles so clients could access it in a way that made sense for them.

The mutual fund does anchor the strategy, at about $72 billion of the $92 billion. But we also offer active separately managed accounts, we launched an exchange-traded fund in 2023, and we have an offshore fund. Being able to grow, adapt, and deliver these options to clients is one of the reasons I’ve stayed.

What do you think you learned from your father’s career that helps you in your job?

That is a very interesting question, and I don’t want to compare what we do to the dangers of fighting fires. But firefighting is very much about preparation and measuring the risks you take and staying focused on your objective.

On our team, my co-managers, Brendon Circle and Todd Brighton, have the same mind-set. For example, in April when the markets fell, it was a time to look across the broad range of assets to recharge the portfolio’s ability to generate returns. That is when you get those opportunities.

Anything else you’d like to share?

There’s another way my father has played a role in my work. When I think about our shareholders, I think of my father getting his monthly Franklin Income check in addition to his pension. I’m pleased that we were able to increase the distribution rate of the fund as rates rose in recent years. We aim for a lot of consistency and to make that dividend as stable as possible.

I often think about how there is a real connection between what we do as portfolio managers and the lives and retirements of the individuals who rely on us.

Thanks, Ed.

Write to Amey Stone at amey.stone@barrons.com