Easy Income Portfolio: July 2026 Edition

Income Is Still Available, but Selectivity Matters More Than Ever The financial markets continue to provide plenty of noise, drama and breathless predictions, which is fortunate for the financial media because calm markets do not generate many clicks. Fortunately, the Easy Income portfolio was not designed to profit from headlines. It was built to collect substantial amounts of cash while owning assets that do not all respond to the same economic and market forces. That diversification remains especially valuable today.

The broad equity markets have continued to advance, supported by strong corporate earnings and enthusiasm surrounding artificial intelligence, energy infrastructure and financial stocks. Expectations have also become extremely high. Analysts expect S&P 500 earnings to rise more than 20% in the second quarter, with technology and energy providing much of the growth. The market is not cheap, and companies that merely meet expectations may find that investors are no longer impressed.

Our approach remains different. We are not trying to predict which artificial intelligence company will discover the next digital miracle. We are investing in cash flows generated by loans, pipelines, mortgages, royalties, preferred dividends, bank capital and discounted pools of securities. The portfolio continues to produce income while giving us exposure to several areas where prices remain below underlying value.

The Credit Dashboard Remains in Nirvana Our four credit regimes are Nirvana, Caution, Crisis and Recovery. We remain in the Nirvana regime. Credit is widely available, financial conditions are loose and defaults are not threatening the financial system. That is good news for the economy and the portfolio’s income streams.

It is less exciting for bargain hunters because spreads remain tight. S. High Yield Index option-adjusted spread was 269 basis points. That is an extremely modest premium over comparable Treasury securities and remains well below levels that usually signal genuine fear.

The ICE BofA CCC and lower spread was 972 basis points. The market is distinguishing between decent credits and its weakest borrowers. Investors are not demanding much compensation for owning the broad high-yield market, but they are charging heavily leveraged and troubled companies a much higher price. The AA corporate spread was just 56 basis points.

Investors are receiving almost no additional compensation for owning the obligations of high-quality corporations rather than Treasury securities. 515 for the week ended July 3. Negative readings indicate that financial conditions are looser than their historical average. Conditions also became slightly looser during June.

515 Credit markets are not signaling an approaching recession or financial crisis. They are telling us that investors are comfortable, perhaps too comfortable. We should continue collecting income, but this is not the time to abandon underwriting standards or chase the weakest credits merely because they offer another percentage point or two of yield. Private Credit and Business Development Companies Private credit and publicly traded business development companies remain the most controversial part of the income markets.

That is one reason they are also among the most interesting. The private credit industry is dealing with several real problems. Borrowers that took on floating-rate loans when money was cheap have endured several years of elevated interest expense. Some have responded by requesting covenant amendments, extending maturities, capitalizing interest or using payment-in-kind arrangements instead of paying all their interest in cash.

Software loans remain a particular concern. Many private equity firms paid enormous multiples for software businesses under the assumption that recurring revenue made them nearly bulletproof. Artificial intelligence has raised questions about the durability of some of those businesses at the same time that higher interest expense is squeezing cash flow. Those risks are real.

They are not evidence that the entire private credit industry is collapsing. KBRA’s review of rated BDCs found that the sector continued to demonstrate relative financial stability through the first quarter despite market volatility, credit concerns and pressure on earnings. The more immediate problem is a mismatch between the amount of money being raised and the number of attractive new loans available. 25 billion in the second quarter, the strongest fundraising total in two years.

59 billion, the lowest quarterly volume since 2023. That creates two competing effects. Competition for new loans can push spreads lower and weaken lender protections. At the same time, cautious deployment by established managers suggests they are not blindly throwing money at every private equity sponsor who walks through the door carrying a spreadsheet and an optimistic EBITDA adjustment.

Our preference remains unchanged. We want BDCs affiliated with large, experienced private equity and private credit managers. Firms such as Ares, Blackstone, Blue Owl, KKR, Oaktree, Apollo, Barings and Goldman Sachs have larger sourcing networks, deeper restructuring capabilities and greater access to information than smaller operators. When a borrower experiences trouble, size and experience matter.

A lender with a large restructuring team and relationships throughout the private equity industry has more options than one whose recovery strategy consists of crossing its fingers. Publicly traded BDCs have already discounted a substantial amount of bad news. The Raymond James equal-weigh