Higher yields historically have meant higher prospective returns. Today, you can build a core plus fund around 6% income. And that was versus prior to 2022 when that same quality portfolio would yield about 4%. That 2% difference may seem small, but 4% compounded over a seven-year life results in a 30% cumulative return versus 6% compounded over that same life results in a 50% cumulative return. So that 2% annualized difference actually equates to a 20% difference in cumulative return over the time period. So volatility may feel uncomfortable today. But oftentimes, volatility is what sows the seeds of opportunity, even if it's just plain, boring, old income. And we don't think 5% to 6% income is all that boring.

We're really long-term investors. We think through three to five years out. We're looking for strong companies with strong enduring fundamentals. Just because prices are being dragged down today because of macro concerns or uncertainty doesn't mean that we don't have a strong underlying fundamental company to invest in. We're really looking for that detachment. We're looking for prices that are implying that this macroeconomic uncertainty will result in a slowdown in our company in perpetuity.

We saw opportunities in April in ABS securitized, for example. We saw opportunities in investment-grade corporates and high-yield corporates. These were securities that were unfairly mispriced, in our opinion, but whose fundamentals show a continuation of positive trends and thus lower default risk despite the macro uncertainty. When we see that decoupling, that's generally when we're opportunistic as value investors. 

In uncertain and volatile times like today, having an active core-plus manager who is nimble really adds an advantage because they can exploit the opportunity sets that come and go along with the volatility.

Although I don't think it's a long-term structural risk, I do think deficits are a problem that we will need to address as a nation at some point in the future. The good thing is the Treasury has taken some smart steps in managing the maturity structure. They are potentially allowing the banks to lower the cost of capital to hold US treasuries. And probably most importantly, we believe the risk is sufficiently priced into securities today. As for inflation, I don't think it's a structural problem. I think it's a cyclical one. 

We injected a lot of stimulus in 2020, which caused prices to go up significantly. And we're still working through that. Certainly, the tariffs haven't helped. And I think as we work through over the next couple of quarters, you'll see a resumption of the natural trajectory lower for consumer prices.

We continue to prefer cyclicals and consumer-facing companies as areas of opportunity. Why is that? Well, when you have a lot of these macro concerns and uncertainty around tariffs, what tends to happen is that risk gets priced in uniformly across those sectors. Our opportunity is to find companies that are unfairly being dragged down because of macroeconomic concerns, but whose fundamentals remain quite strong. 

Take, for example, a recent MBO of a roofing company backed by a very strong manager who has a history of aggregating industries successfully. The roofing space is ideal because the top three players own about 50% of the market, with a very fragmented tail, making it ripe for consolidation. Day one leverage is high, but management already monetized their stock to pay down debt and thus de-risk the balance sheet. That type of prudent capital allocation is what we look for.