Franklin Resources Management Discusses Q1 2014 Results - Earnings Call Transcript

| About: Franklin Resources (BEN)

Franklin Resources (NYSE:BEN)

Q1 2014 Earnings Call

January 30, 2014 10:30 am ET

Executives

Gregory Eugene Johnson - Chairman, Chief Executive Officer, President and Member of Special Equity Awards Committee

Kenneth Allan Lewis - Chief Financial Officer, Principal Accounting officer and Executive Vice President

Analysts

Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division

Craig Siegenthaler - Crédit Suisse AG, Research Division

Steve Fullerton

Michael Carrier - BofA Merrill Lynch, Research Division

James Howley

Eric N. Berg - RBC Capital Markets, LLC, Research Division

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

Roger A. Freeman - Barclays Capital, Research Division

Brennan Hawken - UBS Investment Bank, Research Division

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Operator

Good afternoon, and welcome to Franklin Resources Earnings Conference Call for the quarter ended December 31, 2013. My name is John, and I'll be your conference operator today. Please note that the financial results to be discussed in this conference call are preliminary.

Statements made in this conference call regarding Franklin Resources Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements.

These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including -- in the risk factors and MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. [Operator Instructions]

Now I'd like to turn the call over to Franklin Resources' CEO, Mr. Greg Johnson. Mr. Johnson, you may begin.

Gregory Eugene Johnson

Well, thank you. Hello, and welcome to the call this morning. I'm joined by Ken Lewis, our CFO. The first quarter was a strong start to this year as we again reached new highs [ph] for revenue, operating income and earnings per share. Overall investment performance remained strong, and we are pleased with the traction in equity and hybrid flows, which were the strongest since '07.

I'd now like to open it up for your questions.

Operator

Our first question comes from Luke Montgomery from Sanford Bernstein.

Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division

I guess I'm also a little surprised there's no special dividend in December. So maybe just a comment on what went into that decision, whether it reflects U.S. cash balance constraints. And I realize the board is not scheduled to meet again until March. So maybe you don't have total clarity, but I'm wondering if not doing it in December means the likelihood of a special is pretty much off the table in 2014? And then also you said in the prerecorded remarks, there's no change in your approach to capital management, but just wondering what you might be thinking in terms of the mix of dividends and buybacks going forward?

Kenneth Allan Lewis

Okay, sure. This is Ken. I'll take that. Regarding the special, I think when we looked back in the past specials a few years ago, a lot of it was driven by coming -- new tax regulations and wanting to take advantage of that. That was clearly not on the table this year. I don't think that it indicates any change at all in our capital management approach. We continue to systematically reduce our share count over time. We've continued to grow the dividend at a rapid pace. It's increased every year since our first dividend in 1981. We'll continue that. I wouldn't say anything is off the table. I think that the board will consider, will look at all -- the whole mix of our capital management, the share repurchases, the dividend growth, and at that time, they'll see if they want to do a special dividend or not. I wouldn't rule it out, but I certainly don't think that it's going to be part of our -- a recurring thing because that's why they're specials.

Luke Montgomery - Sanford C. Bernstein & Co., LLC., Research Division

Okay. Helpful. And then just to ticky-tack one [ph] on the tax rate, it was a bit higher this quarter. You called that a mix shift in earnings and then some impact from noncontrolling interests. Maybe just a little color on -- is that more revenue moving to the U.S. and perhaps what you expect for the tax rate going forward, and whether the drivers you said will continue or be -- maybe even less favorable?

Kenneth Allan Lewis

Yes, I think it's real hard -- challenging for us in the beginning of the year to get an estimate of where the earning mix will be in the quarter. But based on the first quarter, we did project that the earnings mix will be higher, it probably accounted for about 0.5 point. There were kind of ins and outs as well, but there was also a little bit of an increase in a couple of states that put pressure on the rate, maybe about 1/4 of 1%, 20-25 basis points. So that's why we are projecting 29.8% in that range, a little bit higher than it has been in the past year. And I think that the question about the U.S. earnings is true. I think we will have some -- we're expecting to have some higher mix in the U.S. and also that should bring some more cash into the U.S. as well.

Operator

Our next question comes from Craig Siegenthaler from Credit Suisse.

Craig Siegenthaler - Crédit Suisse AG, Research Division

You talked about the regulatory changes that allowed you to start marketing products managed outside of China to Chinese insurance companies, and just to be clear, I believe you're referring to business that's managed outside of your joint venture with Sealand, right?

Gregory Eugene Johnson

That's correct. It's just an opening up of the insurance companies that we actually have had good relationships with for years. We have a joint venture with China Life, and we've been very active in anticipating this opening up where the insurance companies can now use outside managers for their own assets. We think that, that could have a real nice impact for institutional flows out of there.

Craig Siegenthaler - Crédit Suisse AG, Research Division

And does that have to go through a QDII structure? Or can you just go directly?

Gregory Eugene Johnson

No. It can go directly.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. And then just a follow-up on the operating margin. How high are the incremental margins on some of your largest funds that have very large scale, like Templeton Global Bond, Franklin Income Asia Growth?

Gregory Eugene Johnson

I think the large funds do add to the scalability of the company. I think when you look at margins, one of the things, if you compare it maybe this quarter to the same quarter last year, which should rule out any variations due to seasonality, one of the things that was unique this quarter was a lot of the increase was due to market. And so you're not going to have that pressure you might have on the sales and distribution line that you'd have if the mix was more balanced between sales and market appreciation. So I think that, if you were to compare this year versus last, it's probably the biggest driver of the margin expansion.

Craig Siegenthaler - Crédit Suisse AG, Research Division

Got it. But on the incremental margins for this product, is it materially higher? I imagine it is, versus kind of the 38% range you're at now.

Gregory Eugene Johnson

It's tough to say. It depends on the fund itself. But certainly -- and it depends on where it's sold, where the vehicle is registered. But clearly, it's better for us to sell the big -- to have revenue come from the bigger funds because the smaller funds and the local asset funds, they're kind of just growing and trying to reach that scale.

Operator

Our next question comes from Bill Katz from Citi.

Steve Fullerton

This is Steve Fullerton filling in for Bill. First question, I just want -- if you guys can review the decision of the bundling of services in Canada. What drove the decision, and what might be the impact to margins or flows?

Kenneth Allan Lewis

Yes, so that was -- just looking at the market, we probably -- a lot of the big banks had gone to that standardized management -- administration fee. The thinking there is that it provides more predictability in terms of the TER rate. You're always going to have a set expense ratio, and advisors typically like that. They don't like to be surprised. The old method was the funds would pay expenses as they came up, and so you might have -- there'd be a little lumpiness in their TER rate from period to period. So it's just an easier way to predict the TER rates for the funds and compare them across the landscape in Canada. It's unique to Canada. We don't see that in any other jurisdiction. It's just driven by market.

Steve Fullerton

Okay, great. And then are you seeing a big pickup in retail alternatives [ph] ? Where's the opportunities? Are there any early successes to start the year here?

Kenneth Allan Lewis

Yes, I'll take a start at this, Ken. We launched the K2 Retail Fund in November. There's been a lot of interest in it. These things take a while to get on platforms, but it is now on 41 platforms. I think the fund is about $300 million. Performance has been great in that fund. And that's -- so that's why it's getting a lot of interest. In terms of seeing significant flows, I think across the whole industry, we're not really seeing that yet.

Operator

Our next question comes from Michael Carrier from Bank of America.

Michael Carrier - BofA Merrill Lynch, Research Division

Great. You hit on this on the prerecorded call to some extent, I just wanted to get your sense. There's been a lot of volatility on the EM side this month and if we think about 2013, those markets have underperformed. You guys have still held up relatively well. I just want to get your sense in terms of what you've been doing kind of on the client side to explain whether it's on the Templeton side or the Global Fixed Income, how you guys are managing through some of this volatility? And then if you look past -- in the past, in terms of experiences where we've had this type of environment where you do have a pickup in volatility, how do the clients typically react in your products? And are there areas that they'll kind of hide in temporarily before they kind of move back into these riskier areas?

Kenneth Allan Lewis

I think, first of all, you got to remember that most people that own emerging markets own them with a relatively small percentage of their portfolio. They understand that you have more volatility. And a lot of people, a lot of investors also look for points when you have -- because when you have sell-offs in these markets, they tend to be a bit more dramatic and create nice price points to get in or to add more. So I don't think you have a big education issue out there. I think we're out there talking about the growth. I mean the growth is slower, but it's still double that of developing markets. We think it will be an excellent market for stock-picking. Because the old way, you kind of looked at emerging markets, and when you had the capital going out, all of the currencies were under pressure. They relied on outside capital. Today, you don't have that. You can really differentiate between the countries. So that's the story we are talking about now is that when you have these blanket selloffs and everybody's saying, "Let's invest in the Developing Markets." The entire market gets hit. And that's kind of what we're seeing today. And you can really distinguish -- and that's the same with that Global Bond Fund as well, that all of these currencies will get hit. But some of them are much healthier than even the developing markets. And I think that's been the big change over the last decade or 2, and that's the story that we are talking about. For us, it's still emerging markets are 5% of the overall assets. And I think the other point I would make, obviously, Global Bond would include that much higher number. But Templeton, the Templeton equity side, which had continued to have excellent performance through this selloff, is underweighted in that area right now and probably that's something they're looking at. But they've been well positioned for this. I don't think it necessarily means that you're going to see a big pickup in redemptions due to the more -- due to the volatility. And it really hasn't been that great yet. It could be much greater.

Steve Fullerton

Okay. That's helpful color. And then, Ken, maybe -- I think you noted this quarter performance fees ticked up a bit. Given some of the product launches and what you have in the AUM now versus historically, should we be seeing a higher level of these performance fees? And just remind us of any seasonality that you typically experience.

Kenneth Allan Lewis

Yes, sure. I think particularly with the acquisition of K2, we'll be mentioning performance fees more than we have in the past. The biggest quarter for them, and I guess historically for us too, is December. And I mentioned, they were [ph] about $22 million. The next biggest, for K2 anyway, is June. And we also have a couple of other products that we would have performance fees in June, and then maybe a little bit in the quarter that ends March. So in order of magnitude, last quarter probably the -- we'd expect the biggest performance fees, then June and then March.

Operator

Our next question comes from Michael Kim from Sandler O'Neill.

James Howley

This is actually James Howley filling in for Michael this morning. I appreciate some of the color you guys gave around some of the retail mix shift on the prerecorded. But I wanted to sort of focus on the Institutional business. Are you sort of seeing any meaningful shifts in allocation trends in the RFP that you've seen come across? And can you sort of update us on the level of the pipeline relative to past quarters? And then maybe any color on the underlying mix there?

Kenneth Allan Lewis

Yes, I mean I'll start with, I think, the Institutional business, as you can see from the numbers, had a very strong quarter with over $3 billion in net inflows. And I think as far as the pipeline, I mean I haven't heard or seen any real change in around the RFPs. I think for us, it continues to be the strength around Global Equities and continuing to leverage on the improvements in our performance on the Templeton side, and then really, the bond side as well. I mean you're still seeing surges there despite the headwinds of rising rates in the bond market. So we haven't really seen -- I think we get a lot of other RFPs just in specific areas that people want exposure to, but the real drivers for us continue to be global equities and global bonds.

James Howley

Great. And then sort of just turning to product development. Obviously, interesting with the Asian income fund that you called out. It's going to be [indiscernible] side of Hong Kong. Is there any way to size that opportunity at this point?

Kenneth Allan Lewis

Well, I just think we feel like that market will continue to develop, both in liquidity and offerings. And also as investors get more sophisticated, that fixed-income is a nice way to lower risk in a portfolio. And how quickly it evolves? I think it's already -- we've seen decent flows into that and decent demand, but we really don't try to guess how quickly or what the market is going to look like in a few years. Just I think it -- like many markets as they mature, there'll be a greater demand for fixed-income from retail.

Operator

Our next question comes from Eric Berg from RBC Capital Markets.

Eric N. Berg - RBC Capital Markets, LLC, Research Division

In recent quarters, you've gone to great lengths to highlight the risks other than interest rates that you manage inside your large fixed-income funds. You've had your senior leaders on the call and talked about credit risk and currency risk and perhaps other risks other than interest rates, yet the outflows were substantial in fixed income. Does this surprise you and disappoint you? Or should we think of this as to be expected, notwithstanding the efforts you have made to highlight the noninterest rate-related risks?

Gregory Eugene Johnson

Yes, I mean, I think that's -- it's always a challenge, and I think it's also a challenge when you don't really have the visibility of the underlying portfolio. And you take the case for us, where Europe has been the big driver of a lot of the global bond net flows, and that's been the area where we've seen the heaviest outflows. And I think our feeling is that the weighting of the underlying investor was probably higher to that category and less to equities, and the strength of certainly European equities for Europeans. A lot of people, and we've seen it in the exchange activity as well, had the confidence to get back into equities, and they may have had high-weighting to areas like global bond, which may have been somewhat of a holding area for them, and move back into equities on the strength of Europe over the last year. We've certainly seen that in the exchange activity. The point is, when you look at a portfolio, right or wrong, an unconstrained bond fund, a Global Bond Fund is still going to be put in the fixed income category. And somebody looks at that and says, "Well, we have a weighting of x%, maybe we got to take it down a little bit," then they take down everything a little bit. I think that's what's happened. And in Europe especially, where it's more gatekeeper-consultant type-driven for portfolio allocations. I think it's just what we've -- again, what we've seen talking to the big banks is that they've just lowered their exposure to fixed income and that kind of takes everything down with it.

Operator

Our next question comes from Ken Worthington from JPMorgan.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

I wanted to follow up on sort of MiFID and the impacts it may have on RDR. I guess, first of all, just basically with RDR being like fully in effect this Jan 1. Have you seen, in places where RDR is in effect and where you have sales, does it matter? Has it been having an effect on either the composition or the sales that you have in those RDR regions?

Gregory Eugene Johnson

I think it's probably a little early for us, and the hard part is because of the volatility in the marketplace, especially in our 2 strong areas in Europe, which would be Asian Growth and Global bond. It's hard to draw really any conclusions on what the effect of RDR and the new share classes are having on that. I mean talking to our distributors, I think they feel that it shouldn't have a big impact. But I think it certainly is a big change and could have some impact. But I think it's just, again, too early in a month with the kind of volatility that we've seen, especially for our 2 strongest areas, to draw any conclusions right now.

Kenneth B. Worthington - JP Morgan Chase & Co, Research Division

Okay. And then assuming, we don't know if it matters or not, MiFID II seems to be incompatible with RDR. Any views on just RDR get overwritten by MiFID. It seems like MiFID enhances disclosure but no ban on third-party inducements. Just any opinion on what happens on the regulatory front given the kind of conflicting regulations?

Gregory Eugene Johnson

Yes, I don't really have a strong opinion, one way. I think those are things that should be worked out. I don't think you're going to have 2 conflicting major rules out there. And a lot of work is still to be done on that. So I'm hopeful that we'll come out with one view.

Operator

Our next question comes from Robert Lee from KBW.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

A quick question, maybe going back to capital management. In the past, you guys have been pretty opportunistic of putting some term debt on the balance sheet and kind of using the proceeds to -- for the most part to buy back stock or fund the special dividend over time. And if I look at today, most of your existing term debt, I know you have some coming due in '15, but it's termed out, business has continued to grow, maybe generating a bit more earnings in the U.S, or expected to going forward. What's your willingness or appetite to maybe kind of contained incrementally -- add some incremental term debt and maybe take advantage of still cheap funding and use that to add to the share repurchase over the near term?

Kenneth Allan Lewis

It certainly -- it's certainly a tool that we could use, and I don't think that there's any particular resistance to doing that. On the other hand, there's no plans to do it either. And we've done it in the past. So I think there's -- in our opportunistic approach to share repurchases, on one hand when we see tremendous opportunity, that's certainly something that we would consider to do. Because we could withstand -- it wouldn't put the rating in jeopardy and -- I think the interest rates are still low, as you mentioned. So we would consider it.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

And maybe, if we think of the U.S., non-U.S. split in terms of cash generation. Again, you kind of suggested that it's increasing somewhat in the U.S. relative to outside of the U.S. How should we -- if you're looking ahead at this year, looking at cash that's available to fund repurchases or dividends. Are we starting to get to the point where 60% is coming from the U.S.? Or is this still in the 50-50 range? So how should we think of that?

Kenneth Allan Lewis

Yes, I think it could be -- I would expect it to be a little bit -- the U.S. cash earnings rate to be a little bit higher than it was last year. And I think part of that is due to some changes in the tax rate. We saw the tax rate go up a little bit. And I think we'll see a little bit more cash in the U.S. But I don't think it will get to the 60% number that you were talking about.

Robert Lee - Keefe, Bruyette, & Woods, Inc., Research Division

And one last question, maybe, Greg, for you. I'm just kind of curious about muni flows. You did touch upon it in the prepared remarks. How confident do you feel that -- I mean it's been a big source of outflows last year, but is that you're really turning the corner, not just maybe some seasonality, but maybe you're setting up for a possible sustained improvement. Maybe even turning it to inflows. Is that something you feel pretty confident about?

Gregory Eugene Johnson

I don't know I feel confident at this stage. I think the -- it's still just the headline -- headwinds that the market faces. And to me, people and investors need to differentiate what's happening in the muni market. Overall, the municipal bond market is much healthier than it was a few years ago. Yet the markets and spreads and everything are much wider because of the specific risk -- risks with certain bonds. But the states are much healthier. The surpluses, in many states, have been created. The budgets look a lot better. I think that message is one we're doing our best to get out in the marketplace. And then at some point, you have higher taxes this year. So all of those with the relative -- the after-tax yields just make them look attractive. How quickly investors come back? We saw a major drop in the redemption rate quarter-over-quarter. We saw an improvement in net flow rate, but we didn't see -- we saw a continued drop in sales. I guess that's good news for some, at least, hanging in there. But we need to attract new money in. And I think, I've said this before in fixed-income, when things stabilize and the markets and people look at how attractive these yields are on an after-yield basis, I think you will get investors moving back faster. But it's hard to say. I'm just like you, I'm hopeful it happens this year. But I think there is some headwind just on the perception of rates and getting through tapering and what that means.

Operator

Our next question comes from Roger Freeman from Barclays.

Roger A. Freeman - Barclays Capital, Research Division

Just back on EM, I think one of your earlier responses you mentioned is your education efforts. I'm just wondering, versus a couple of years ago when we saw some volatility in EM, would you say the investor/advisor base understands the product somewhat or a lot better than at that time?

Gregory Eugene Johnson

Well, I think they do. And then most of our assets are through an advisor that's sitting down with that client. And I think, again, if you look at the historic volatility, it hasn't been a major drop. It's been a, from a relative performance, it's a huge differential. But it hasn't been a big loss of money for most investors at this stage. So I think that's helpful in keeping assets as well. But I just think we've got to go back to the long-term fundamentals of growth versus developing markets, and again, how you can differentiate areas around the globe where there is opportunity. So to me, long-term investor needs exposure to market that are growing twice as fast. And I think they do have the understanding that these are more volatile, and you will get, hopefully, they're a smaller percentage of the investor's portfolio.

Roger A. Freeman - Barclays Capital, Research Division

Okay, that's helpful. And I may have missed any comments about this, but I'm just wondering how you're thinking about positioning the domestic equity product this year. Are there any particular marketing pushes? You've had a couple in the last 2 years.

Gregory Eugene Johnson

Yes, I mean, I think we're pleased with the progress of the positioning and our equity net flows were $3.6 billion this quarter, which is very strong for the firm. We have been consistent with our message on equities. Really, that's been the core of our marketing campaign over the last 4, 5 years. And the work that we've done to get these positioned in 401(k) platforms, I think, is paying off. So there's not a whole lot of change in our story. We've also been positioning the portfolios for rising rates, and that's been part of our marketing campaign, where we've talked about how to position portfolios in a rising rate environment, and give them alternatives. And we've seen the strength in many different areas, Global Total Return Fund, a lot of new hybrid funds, that because of those marketing efforts, I think there's an awareness of other types of fixed-income alternatives.

Operator

Our next question comes from Brennan Hawken from UBS.

Brennan Hawken - UBS Investment Bank, Research Division

Quick question on capital management here, or I guess I should say another question. I'd appreciate if you guys could help me understand, it seems like your payout ratio is below what you've indicated in the past as a target. And from the Q, it looks like cash continues to build in the U.S., now it's like $2.4 billion. So I guess, can you help me understand why not step up the buybacks here? Why not -- I mean, Ben, your stock with trailed peers [ph]? So maybe help me understand the decision behind that?

Kenneth Allan Lewis

I think when you look at what's been going on in the market in the last 2 quarters, and I think last quarter, the S&P was up around over 10%. We're typically, because we are opportunistic so our share activity will typically be lower in rising markets like that. That doesn't change at all. Our philosophy, I think that in markets that we're experienced [ph] in the last couple of weeks, we would look for opportunities to buy more stock. So that's -- if you just look at our historical experience, I think you'll see that. And so we are committed to reducing the share count through repurchase activity and growing the dividend. And I think there's no change to that. Now in terms of the payout ratio, I think what we saw was the rolling -- the graph that we do is a rolling 12 months -- the special dividend rolled off there, so that's why you're seeing that drop down. But that's certainly something that management and the board will look at going forward. And depending on what happens with share repurchases and stuff, we'll take some action and we'll consider that [ph] to do something different.

Brennan Hawken - UBS Investment Bank, Research Division

Okay. And then on mutual series, and especially given the fact that it certainly looks like outlook for returns in the U.S. versus the rest of the world looks good and we're starting to see some increased flow activity in equities. What can you guys do to turn around the performance of Mutual Series? And maybe help us understand what's driven the underperformance versus the peer group? And how you can kind of get that turned around in order to capitalize on this better environment for equities here?

Gregory Eugene Johnson

I think, first of all, Mutual Series is kind of hard to put into a clean category for comparison because, historically, the big U.S. equity funds do have exposure to Europe. And as we've said on previous calls, while Europe has been a very good market, the only one it hasn't outperformed has been the U.S. So when you compare that -- those funds, the S&P 500, that exposure will continue to have a drag. They also tend to have a little bit higher cash, and that's been used very effectively in building long-term returns over the past. And Mutual Series lags in rising markets. I think for January, you'll probably see a different story if the markets continue to be under pressure. Mutual Series and those returns will start to rise to the top. And I think it is a different investor. We spent a lot of time talking about the long-term returns and lower-than-market risk that Mutual Series offers, and I think if you get an investor that doesn't like as much volatility, that's the type of investor that will go to Mutual Series. So it's really just the combination of the types of markets that we've had. If Europe continues to perform well, that will bode well for how Mutual Series funds do. And if the U.S. markets continue to sell off, that will help relative performance as well. So I think when we look at attribution there and stock-picking, they continue to do a very good job of that, that's the message that we want to get out there.

Operator

Our next question comes from Marc Irizarry from Goldman Sachs.

Marc S. Irizarry - Goldman Sachs Group Inc., Research Division

Greg, just a question. You gave some nice color on muni flows and growth versus -- growth sales versus redemptions. Any color from the channel in terms of where that money is going? Are you keeping it in -- within the Franklin family?

Gregory Eugene Johnson

Well, I think we've certainly seen a much higher level of exchanges, some of that into the intermediate funds. But I think it's hard again when we sell through advisors, and some of that -- they may be moving it to shorter-term cash and other types of unconstrained bond funds. Certainly, that's where we've seen more exchange activity -- or hybrid funds that have exposure to equities, as well as some yield. I think those are the areas that continue to be strong. And I think that's an interesting trend really, even in a rising rate environment, that you saw the strength of hybrid funds. And usually, the higher income funds would still be under pressure like any fixed income in that environment, yet I think that's where a lot of the rotation is occurring. It's not just taking a fixed-income investor and just moving into equities, or into 0 money market balances. It's moving into hybrid assets, it will still give them some of that equity uplift but have a decent current yield on them as well. So I think that's a notable short-term trend is the strength of hybrid on the exchange activity.

Operator

We have no further questions at this time.

Gregory Eugene Johnson

Okay. Well, thank you, everybody, for participating on the call, and we look forward to speaking next quarter. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!