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spk01: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage 2021 First Quarter Financial Results Conference Call. Today's call is being recorded, and at this time our participants have been placed on a listen-only mode. And the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing the pound key. Lastly, if you should require operator assistance, please press star one. It is now my pleasure to turn the floor over to Jason Frank, Deputy General Counsel and Secretary. Sir, you may begin.
spk02: Thank you, and welcome to Ellington Residential's first quarter 2021 earnings conference call. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature. As described under item 1A of our annual report on Form 10-K filed on March 16, 2021, forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates, and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of the date of this call, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Residential, Mark Takati, our Co-Chief Investment Officer, and Chris Smirnoff, our Chief Financial Officer. As described in our earnings press release, our first quarter earnings conference call presentation is available on our website, EarnREIT.com. Our comments this morning will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the end notes at the back of the presentation. With that, I will now turn the call over to Larry.
spk03: Thanks, Jay, and good morning, everyone. We appreciate your time and interest in Ellington Residential. During the first few months of 2021, we saw a decidedly different market environment in the latter part of 2020. The yield on the 10-year U.S. Treasury, which had been historically low and range-bound during the months following the outbreak of COVID-19, broke above 1% at the beginning of January and continued to rise throughout the first quarter of 2021, increasing 83 basis points in total, as you can see on slide three. At the same time, short-term interest rates remain anchored near 0%, thanks to the continued accommodative policies of the Federal Reserve, and what had been a relatively flat yield curve suddenly steepened, with the 2-year, 10-year spread increasing to its widest level since 2015. Meanwhile, interest rate volatility increased, and mortgage rates rose off of their all-time lows, particularly during the latter half of the quarter. The spike in long-term interest rates and surge in implied volatility was not a constructive scenario for agency RMBS, and most agency RMBS prices declined during the quarter. though performance across subsectors diverged meaningfully. Higher coupon RMBS fared reasonably well, boosted by lower expected prepayments ushered in by the higher mortgage rates. However, extension risk really took its toll on lower coupon RMBS. For example, the effective duration of Fannie Mae IIs roughly doubled over the course of the quarter, from around three years to around six years, and as a result, Fannie Mae II prices plummeted by over four points. As usual, we had a highly diversified portfolio, so we were not overly exposed to lower coupons, but our largest long TBA position was, in fact, in Fannie Mae twos, and not surprisingly, that position was the greatest drag on our results. Despite these headwinds, Ellington Residential's book value was stable, and core earnings remained strong during the quarter, as you can see on slide four. The rising long-term interest rates generated gains on our interest rate hedges and interest-only securities, which, Combined with our net interest income, more than offset net realized and unrealized losses in the portfolio, and we finished with a slightly positive economic return. Thanks to a healthy net interest margin of 1.96%, we generated core earnings of 31 cents per share, which continued to cover our 28 cents per share dividend. Given the opportunities presented by wider yield spreads, we used our strong balance sheet to add some attractively priced pools during the quarter. these purchases increased the size of our agency portfolio by 12%. And while our debt-to-equity ratio rose incrementally to 7 to 1, that leverage is still well below our historical levels. So we still have ample room to increase our portfolio further and thereby grow core earnings, especially should we see continued weakness. Finally, in response to continued tightening yield spreads in non-agency RMVs, We continue to monetize gains in that portfolio, which we had opportunistically ramped up during the market distress last spring. I'll now pass it over to Chris to review our financial results for the first quarter in more detail. Chris?
spk04: Chris Larson Thank you, Larry, and good morning, everyone. Please turn to slide five, where you can see a summary of Earn's first quarter financial results. For the quarter ended March 31st, we reported net income of $127,000, or a penny per share, and core earnings of $3.8 million or $0.31 per share. These results compare to net income of $7.4 million or $0.60 per share and core earnings of $4.2 million or $0.34 per share for the fourth quarter. Core earnings excludes the catch-up premium amortization adjustment, which was positive $70,000 in the first quarter compared to negative $559,000 in the prior quarter. During the quarter, long-term interest rates increased, actual and implied volatility rose, and the yield curve steepened. As a result, agency RMBS durations extended and yield spreads widened, and most agency RMBS prices declined sharply, particularly those lower coupon RMBS. During the first quarter, we continued to concentrate our long TBAs in lower coupons, and price declines in that subsector generated significant losses as you can see on slide five. In addition, the increase in long-term interest rates reduced the demand for prepayment protection, which caused our prepayment-protected specified pools to underperform. Meanwhile, the rise in long-term interest rates drove net gains on our interest rate hedges and agency interest-only securities, which, along with net interest income, more than offset the net losses on our long agency RMBS holdings. You can also see on slide five that our net interest margin decreased to 1.96% from 2.12% quarter over quarter, driven by lower asset yields, which, as we've discussed on prior calls, is a combination of turning over our higher-yielding non-agency portfolio and agency RMBS and reinvesting at lower market yields. You can also see here that we continue to benefit from very low borrowing costs. In fact, if you turn to slide 18, which is our repo borrowing slide, you can see that not only did our weighted average financing rate at March 31st decline three basis points to 22 basis points from December 31st, but we were also able to lock in these lower rates for a significantly longer period of time. You can see on this slide that remaining days to maturity more than doubled quarter over quarter. Shifting back to the asset side of our portfolio, declining pay-ups on our existing specified pool investments continued with our focus on low pay-up specified pools on new purchases caused the average pay-ups on our specified pool to decrease to 1.61% as of March 31st as compared to 2.4% as of December 31st. Please turn next to our balance sheet on slide six. As Larry mentioned, we took advantage of some wider yield spreads during the quarter to increase the size of our agency RMBS portfolio, which we financed at very attractive rates. As a result, our debt-to-equity ratio adjusted for unsettled purchases and sales increased to 7.0 to 1 as of March 31st as compared to 6.1 to 1 as of December 31st. Despite this incremental increase, we continue to maintain higher liquidity and lower leverage during the first quarter as compared to periods prior to the onset of the COVID-19 pandemic. Book value per share was $13.22 at March 31st as compared to $13.48 at December 31st. Our economic return for the quarter was slightly positive with the first quarter dividend of $0.28 per share just slightly exceeding the decline in book value. Next, please turn to slide 7, which shows a summary of our portfolio holdings. In the first quarter, agency RMBS holdings increased by 12% to approximately $1.18 billion as of March 31st. Our non-agency RMBS holdings decreased by 41% to $10.4 million as we continue to monetize gains in that sector. Next, please turn to slide 8 for details on our interest rate hedging portfolio. Our interest rate hedging portfolio continues to consist of interest rate swaps, short positions in TBAs, U.S. Treasury securities, and futures. Finally, on slide 9, you can see that our net long exposure to RMBS was 6.2 to 1 at March 31st, up from 5.6 to 1 at December 31st. I will now turn the presentation over to Mark.
spk09: Thanks, Chris. The first quarter was characterized by sharp move-up in interest rates. a much steeper yield curve, and with it, higher levels of realized and implied volatility. What's interesting is that this move higher in rates and the yield curve steepening were of similar magnitude to the taper tantrum, but agency MBS performed much better this time around. That was undoubtedly because the Fed continued to steadfastly support the agency MBS market, and in fact, there was not even a whiff of wavering of Fed support. Big bear market steepening moves, which is what we had in Q1, are notoriously challenging for mortgage investors. MBS extended duration on the part of the yield curve that's selling off faster than where previous duration hedges were. Delta hedging costs eat into net interest margins, and higher rates typically bring out sellers of mortgages. Couple those dynamics with relentlessly fast prepayments, and you had a challenging fundamental backdrop this quarter. Because of the lag between changes in interest rates and changes in prepayment speeds, MBS have yet to reap the benefits of a speed slowdown from the rise in mortgage rates. The offset is that technicals for MBS remain incredibly strong. Fed buying has been big and consistent, bank buying has been big and consistent, and roll levels in many coupons have been strong. The stock effect of Fed purchases becomes more and more powerful over time, especially when banks are also buying. While MBS look expensive on a fundamental basis, on a relative basis to other spread products such as corporates and high yield, MBS look okay. For the quarter, we did marginally better than break-even, which was not the results we were looking for. But the higher rates and steeper yield curve are creating some better opportunities for us. One nice thing is that spec pool pay-ups came down with the interest rate sell-off. You can see this on slide four where our pay-ups dropped by 80 basis points. some previously high pay up sectors that we had avoided now look more attractive, and this creates some nice optionality for us should interest rates drop further. Also, for production coupons, duration extension has already largely happened. Given that the forward curve already implies sharply higher future interest rates, there isn't much more duration extension left, even if rates increase further from here. What is interesting is that the interest rate rise in the quarter almost brought yields back to pre-COVID levels on the 10-year note. At the start of 2020, so pre-COVID, the 10-year note yield was 1.9%. It dropped down to 50 basis points last summer and ended this quarter at 1.75%. Earned book value is actually higher now than what it was pre-COVID, and that's a really good outcome in a year of unprecedented volatility. For the quarter, we grew our agency portfolio by 12%, as you can see on slide 7. We also grew our net mortgage exposure, shown on slide 9, which nets out our TBA short positions. There were times within the quarter when mortgages were wider to swap hedges than where they ended up on March 31st, and we took advantage of that. Looking forward, we see a material prepayment slowdown in 30-year 2s and 2.5s, but the outlook for higher coupons is decidedly less clear. And given the significant capacity buildup in the mortgage industry to accommodate record volumes, it may be the case that higher coupons don't slow down as much as anticipated. So we'll look to the prepayment report due out later this week, and parts of our portfolio could benefit. Turning to slide 8, you can see that we increased our hedges significantly with increasing duration of our pools and TBAs. As Chris mentioned, as you can see on slide 8, we also took advantage of very attractive rates in the repo market to significantly increase the duration of our repo borrowings. our average remaining repo maturities extended from 48 days all the way out to 126 days. The repo curve is very flat now, and repo lenders are offering extremely favorable terms. In our last round of financings, we were able to borrow for one year at a rate as low as 18 basis points. Looking across markets, the reach for yield is accelerating. You see this everywhere you look. There are bidding wars for complicated, illiquid assets like subprime auto residuals. and the Barclays High Yield Index now has a yield below 4%, assuming no defaults. These dynamics can certainly persist, and looking just at role levels, certain MBS coupons currently look very attractive. However, we shouldn't lose sight of the fact that on most OAS models, which granted ignore the role, production coupons are negative OAS, and that these models might even be understating how negative these OASs really are, given that improving technology makes it more and more likely that prepayment models that derive predictions based on historical data are likely to understate prepayments. So if we opportunistically add mortgage exposure to take advantage of the strong technicals of Fed buying and attractive roles, we want to do so in liquid TBA coupons or liquid pools so that we can easily change directions if the technicals change. We see the MBS market today as very much a tug of war between a great technical backdrop and lofty valuations. Role levels are high, borrowing costs are close to zero, and the Fed's stock effect is getting more powerful every day. Furthermore, with the anticipated GSE changes resulting from the PSPA agreement with the U.S. Treasury, we think that some portion of the agency MBS market will be shifting back over to private label, further reducing supply of agency MBS net of the Fed. but valuations are strong and largely already reflect these positives. We will be opportunistic and disciplined about our mortgage exposure and plan on taking advantage of lower specified pool pay-ups to add back some of the deeper call protection that we let run off in the last nine months. Now, back to Larry.
spk03: Thanks, Mark. I'm pleased that Ellington Residential was able to protect book value and maintain strong core earnings in what was a challenging quarter, for agency residential mortgage-backed securities. The quarter was in many ways reminiscent of previous periods of rapidly rising long-term interest rates, such as the taper tantrum of mid-2013, as well as the weeks following the U.S. presidential election of 2016. I'd like to remind everyone that Earn outperformed virtually all of its peers during the 2013 taper tantrum, and even more to our credit, we actually had a positive economic return in the fourth quarter of 2016. And in this past quarter, despite the 10-year Treasury yield almost doubling from 0.91% at year end to 1.74% at March 31st, we again still managed to generate a positive economic return. As Mark mentioned, we still like the technicals for agency RMBS. Institutional investors remain flush with cash, and the Federal Reserve is still buying. Add to that a big appetite from commercial banks for agency RMBS today, along with incredibly inexpensive and available financing for leveraged investors. And you have lots of stabilizing forces in the market today. We expect this technical support to continue. So with these factors in mind, we'd like the opportunity to add some attractively priced specified pools during the first quarter, mainly around the volatility in February and March. But we also hedged a good portion of those purchases with short positions in TBAs to protect against the downside. And we are staying liquid, as Mark mentioned. Previous market shocks have taught us the importance of staying disciplined on risk management, including staying appropriately hedged. Looking forward, we are seeing signs that the prepayment wave could be abating as mortgage rates are on the rise and fewer and fewer agency mortgages are refinanceable. As we discussed on our last earnings call, in this environment it's critical to weigh both the prepayment risks and the extension risks that are present in the market. and construct a portfolio that strikes a balance between these countervailing risks. Just as we saw during the first quarter, we anticipate there to be substantial ongoing divergence of performance between different subsectors of the agency RMBS market. And we believe that such a rapidly shifting marketplace to our strengths, where asset selection and risk management will continue to drive performance. Across market cycles, and we've seen a lot of them over senior management's 35 plus years in the mortgage market, we will continue to deploy a dynamic and adaptive interest rate hedging strategy to protect book value while dialing up and down our agency RMBS exposure in response to market opportunities. With that, we'll now open the call to questions. Operator, please go ahead.
spk01: Ladies and gentlemen, as a reminder, in order to ask a question, please press star followed by the number one on your telephone keypad. We'll pause for just a moment while we compile the Q&A roster. Again, that's star one. And your first question is from the line of Eric Hagan with BTIG.
spk05: Hey, thanks. Good morning, guys. I have a couple here. You noted speeds for higher coupons look somewhat unclear at this point. Can you elaborate on what you think is driving the direction and sensitivity of specified pools from this point forward? Are you guys looking for anything in this week's prepayment report that might offer clues into potential burnout? And then can you address the premium exposure in the portfolio? I think the fair value mark is somewhere around half of stockholders' equity at this point. Can you talk about the approach in managing that premium if the bias is toward higher benchmark rates going forward? Thanks.
spk09: Sure, Eric. This is Mark. So I can address the first part about this week's prepayment report. So I think this is going to be the first prepayment report in several where the expectation is slowdown in prepayments driven by higher mortgage rates. And I think the open question is, how much capacity has the mortgage industry added over the course of 2020 to contend with the huge refinance wave? And how much of the technological improvements that have put in place, not only from the GSEs with appraisal waivers, and their day one certainty initiatives but also just technology from some of the non-banks like a quicken and a loan depot how much is that going to um change the response function so you have a prepayment report where certain coupons that had been in the money say fannie two and a half are now not going to be in the money but some other coupons say fannie three and a half that had been significantly in the money are still in the money but not as significantly And so I think the question is, as sort of the easy refi pickings have ended, has the mortgage industry and mortgage brokers shifted their focus to some of these higher coupons, which are a little bit harder to refinance? Sometimes they're more seasoned, borrowers have been in their home for longer, so typically they'll need an appraisal. But has there been a renewed focus on those types of borrowers such that you're not going to see a slowdown in prepayment speeds? And that's really... I think a big open question for the market, and one thing that we're going to be parsing the report in great detail when we get it, because I think that to me is a big open question. How is technology, not only from the GSEs but from the originators, how is that changing borrower response to mortgage rates?
spk05: Thanks. Maybe you guys can follow up on just how you're approaching the premium in the portfolio, just running a portfolio of specified pools relative to TBA if the bias is towards higher rates.
spk03: Hey, Eric. It's Larry. Are you referring to what we sometimes refer to? Are you just looking at the purely on the asset side of the balance sheet as opposed to also taking into account the TBAs, what numbers are you looking at in terms of, you said something about how our premium was half of our equity?
spk05: Right, yeah, just the asset side, Larry, exactly.
spk03: Okay, yeah, so I think, and this, you know, we give more details in the queue, but it's all derivable from, you know, but I think that if you take into account the, you know, our short side as well, it looks like that our net agency premium as a percentage of, you know, fair value of the whole sort of pool holdings was 4.4%, which is pretty much, it's actually maybe even slightly on the low side, I would say, what it's been, you know, looking back several years. But, yeah, so I think that's very manageable, you know, whether, you know, even if, say, rates were to drop a lot and we would, you know, have another another prepayment, you know, significant spike. So I think it's very manageable.
spk05: Okay, thank you.
spk01: Your next question is from the line of Doug Carter with Credit Suisse.
spk07: Thanks. You talked about the 80 basis point decline in the pay up on spec pools in the quarter. Can you just talk about how they performed relative to your hedges?
spk09: Sure. Hey, Doug. It's Mark. It's a good question. So, right, when we have specified pools, we don't treat them as having the same duration as TBA. We treat them as, you know, depending on what type of pool it is, typically longer duration. And we also treat them as having yield curve exposure a little bit different than TBAs as well. So I'd say, by and large, specified pools for the quarter, remember the lower coupon, sort of underperformed slightly. And the same thing with the higher coupon specified pools. So you say underperformed, at least the way we see them, you know, our hedge ratios versus TBA. And it's, you know, part of it was the theme that roles just continued to be strong, and they really gathered strength towards the end of the quarter.
spk07: Got it. And, you know, just on the specialness of roles, you know, kind of what is your outlook, you know, for that, you know, kind of in the coming months and, you know, if when that might normalize?
spk09: So, you know, you have just pretty good visibility in that, you know, in the markets you can trade roles that, you know, settlement dates go out to July already. You can lock in two months of rolls if you want to. This combination of Fed buying and bank buying has been a strong technical. I would say that the March and April were particularly strong technicals for the mortgage market, and we sort of alluded to it a little bit in the call, but what happens is The way the Fed decides how much they're going to buy each month is they look at how much paydowns they actually got, and then they add $40 billion to it. And so what happened in the second half of this quarter, interest rates went up. If you looked at the amount of mortgages originators were selling each day, that dropped a lot. That went from about $8 billion a day to about $6 billion a day as rates went up. But because the Fed buying is set based on their actual prepayments received, and that's a lag versus when mortgages are sold. They're sold and the borrower basically applies. You had in March and April, Fed buying an outsized amount relative to new production, right? Now, there's a chance you can see that reverse a little bit because, you know, 10-year note ended the quarter at 175. It's 156 now or something. So you've had about a 20-base point rally. But now you're going to get a slower speed report. So now the Fed buying is actually going to drop while production of mortgages might increase a little bit. So this lag between when the Fed buys versus when mortgage rates changed can sort of skew the timing of their purchases relative to production. So I think that the next month or so, we think mortgages will be strong. The other thing I think that can call that into question is if this rally persists, you might see a little bit of a slowdown in bank buying, right? So typically when you get a significant drop in rates, banks will slow down their purchases and see if you get a drop back in rates. So next couple months, I think they're strong. But I would say beyond that, the technicals are probably not quite as good as what they've been for the last month or two. And the other thing I would say is that When you're in the market solely focused on the roles, it means you have a portfolio that's very concentrated in a particular coupon. We tend to like having greater diversity across a range of coupons.
spk07: Makes sense. Thank you. Sure.
spk01: Your next question is from the line of Mikhail Goldman with J&P Securities.
spk08: Good morning. Thanks for taking the question. Most of my questions have been tended to. Just had a follow-up on the leverage. You guys mentioned that you perhaps have some appetite for further leverage going forward. I was wondering how high could it go, if there's a range that you absolutely won't go past, and just your overall thoughts on leverage going forward.
spk03: Hey, Miguel. It's Larry. How are you?
spk08: Good. How are you doing?
spk03: Great. Yeah, so we've, you know, in the past, we've varied it. Obviously, it was a lot lower in last spring. It's never, we've never gotten it higher than, say, 10 to 1. And, you know, we would probably only get to that level, you know, in the mid to high nines if we had a significant TBA short position against the long side. So, but I think in sort of normal times, You know, we think of it sort of between the seven and, you know, nine handle in terms of the range, just on, you know, absolute leverage, let's just say ignoring the shorts. So that's, you know, and, you know, why we're in one range or another obviously can depend upon liquidity issues in the market, but it also most importantly is going to depend upon what we think of the mortgage basis and things like that. So I think that's a you know, a good range to keep in mind just over market cycles. The other thing that can also make that leverage ratio be a little lower is when we have a lot more non-agency, right, because we're not going to leverage those as much. And when we bought a lot of non-agency in spring of last year, our leverage didn't go up really that much because as a percentage of equity, those purchases were not that great, and we didn't even need to finance them you know, with repo because we had plenty of repo capacity on the agency side where financing is much cheaper. So that was a situation where we could gain, you know, a lot of core earnings and core, you know, income tailwinds by buying all those non-agencies. And, you know, that's absolutely what happened without even increasing our leverage. But, you know, just looking at the agency side, I think the sort of seven handle to nine handle range is a good one to keep in mind.
spk08: Great. Thank you, Larry. That's a very detailed answer. And if I may, just one more question on specified pools. You mentioned that you added significantly last quarter, given the fall in the payoffs, and you saw a lot of good attractiveness in the specified pools. Wondering what kind of pools you're looking at, which are more attractive than the others, as you see things right now?
spk09: short-term great question um you know I think we added it was significant but it was certain stories that quickly come into very high pay up that head um come up come off a lot like their search stories that we know used to trade point after two-point that all the sudden you could buy you know a half-point their 580 point that's a big different um Some of those stories, what we see from time to time, are pools that when you run them on a model, the model doesn't know that most of the specified pools are deliverable with TBA. You can just sell them into a TBA, right? So there's certain types of specified pools that when you get a steep yield curve, models are very punishing to because they might assign them, you know, a duration that's two or three years longer than TBA. But in reality, you know, if the payoff's not that high, it's always deliverable into TBA. So some of those stories where you might see the OAS model get tricked a little bit, to us looked pretty attractive, right? Because they can really – the payoff can explode on the upside if you rally, but if you sell off, they don't come off that much. So there's been some of that. The other thing has been – There's been a significant change in the whack of certain coupons, right? So some of the higher coupons, you're now seeing pools created that, you know, have a lot lower note rate. The difference between, you know, the whack and the coupon is a lot less than what it was a lot of last year. So some of those pools are attractive to us. The other thing is we mentioned it in the script. is that the GSEs are making some changes into how much investor loans originators can deliver to them. And so we think it's making it marginally harder for some of the originators to offer real aggressive refinancing terms on investor loans. So that was another story we've liked as well.
spk08: Got it. That makes sense. Thank you, Mark. That's it for me. Thank you, guys.
spk01: Our final question is from the line of Jason Stewart with Jones Training.
spk06: Hey, good morning. Thanks for taking the question. Larry, I wanted to pull back up a little bit and ask your view on inflation, how you think the Fed reacts to your expectations for that throughout the summer, including a taper, and then how you position the overall balance sheet for that. Thanks.
spk03: Hi, thanks, Jason. So, we try not to let our views of, you know, such fundamental macroeconomic factors like inflation color too much how we position the portfolio. So, I mean, obviously, there's a lot of conflicting winds. There's a huge amount of stimulus on the one hand. There's a lot of asset inflation, obviously, already, whether it be real estate, whether it be pond prices, stock prices. So you've got those wins on one hand, but then you've got the countercurrents of continued globalization, issues with the pricing power of labor, things like that. So we're, like I said, we're not going to... take our own opinions too seriously, frankly, in terms of, you know, picking one side or another in terms of what that's going to happen. Obviously, the Fed, we all know how the Fed would react. I think if inflation got out of control for now, it looks like they're not too concerned about that. But, you know, I would say that we certainly would always do scenario analysis in terms of, well, you know, what could happen to our portfolio if this happens with inflation or if it doesn't. And so I think you'll find if you look at, for example, our interest rate sensitivity tables, which are in our deck and in our queues, and if you look at where along the yield curve, which you can see in the deck in terms of the breakout of our hedges, we hedge along the whole yield curve. We're not just hedging the short end which is what some people do. It's obviously cheaper to do that, especially with the steep yield curve we have. So we avoid all those things, and we try to be very disciplined in terms of thinking about where our edge is. So our edge as a portfolio manager, we believe, is not in prognosticating inflation, interest rates, or what the Fed will do from a macroeconomic perspective, but more in terms of where, under various different scenarios of what could happen to macroeconomically, what will happen to our portfolio, and what is the best risk-reward in the various subsectors.
spk06: Great. Thanks. Appreciate the perspective.
spk01: Thanks. Ladies and gentlemen, that concludes today's Q&A session. We thank you for your participation. We ask that you now disconnect your lines.
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