Easy Income Portfolio: September 2026 Edition

Income investors have spent much of the past month dealing with a market that refuses to make life simple. Equities remain resilient, but they are also increasingly concentrated in a handful of large technology companies. Credit markets remain open and broadly functional, but the easy money has been made in many of the most popular fixed-income sectors. Interest rates remain higher than most investors expected, while the evidence continues to build that the longer-term direction of rates is likely lower.

That is exactly the kind of environment where a diversified income portfolio earns its keep. The Easy Income portfolio is not built around one forecast, one asset class or one Wall Street story. It owns a collection of income-producing securities with different economic drivers. Some benefit from elevated short-term rates.

Some benefit when rates eventually decline. Some profit from continued energy demand. Others are designed to exploit discounts, capital inefficiency or the tendency of public markets to overreact to short-term uncertainty. The result is a portfolio built to collect income today while preserving the ability to benefit when the interest-rate cycle finally turns.

The Equity Market Backdrop The broad equity market remains strong, but the market is not cheap and it is not broadly diversified. The largest 10 holdings in the S&P 500 accounted for 38% of the index in August, an extraordinary level of concentration for investors who believe they own a broadly diversified index fund. This is not a prediction of an immediate market collapse. It is simply a reminder that a portfolio made up entirely of expensive growth stocks is carrying more valuation and concentration risk than many investors realize.

Income securities, particularly those purchased below intrinsic value or below par value, offer a useful counterweight. The recent rise in long-term Treasury yields has also created a better opportunity set. Higher rates are uncomfortable for owners of long-duration securities in the short run, but they allow patient investors to lock in more attractive starting yields. That matters because future fixed-income returns are driven much more by the yield you receive when you buy than by anyone’s ability to predict the next Federal Reserve meeting.

Private Credit and BDCs: Pressure Is Real, but So Is the Opportunity Private credit has become one of the most scrutinized parts of the income market. That scrutiny is appropriate. The industry expanded rapidly, underwriting standards became less uniform, and some lenders were willing to stretch on leverage, documentation and borrower quality in order to put money to work. There are real signs of stress.

Payment-in-kind income has risen across public BDCs, liability-management exercises are increasingly common, and the large private-credit complex is being tested by redemption requests in some semi-liquid vehicles. Regulators have also raised concerns about valuation practices, bank connections, leverage and liquidity mismatches, while deteriorating credit quality in portions of private credit — particularly among technology and software borrowers — deserves attention. That is the bear case, and it should not be dismissed. A BDC is not a bond fund.

It is a leveraged lender to middle-market companies, and investors must pay attention to nonaccruals, realized losses, PIK income, leverage, portfolio concentration and the relationship between market price and net asset value. The bullish case is also compelling, particularly for publicly traded BDCs selling below NAV. Most of the better-managed BDCs own diversified portfolios of directly originated, predominantly senior secured loans. They have experienced underwriting teams, long-standing sponsor relationships and the ability to negotiate covenants, collateral packages and amendments in ways public-market lenders often cannot.

70% in 2025, below the long-term historical loss rate. The potential rebound is straightforward. Public valuations have already discounted a fair amount of bad news. If nonaccruals stabilize, credit losses stay manageable and investor concerns about nontraded-BDC redemptions ease, discounts to NAV can narrow.

A modest decline in short-term rates would reduce asset yields on floating-rate loans, but it could also reduce funding costs, improve borrower interest coverage, lower defaults and revive merger-and-acquisition activity. That is a much healthier outcome than a recession-driven collapse in rates. The key is selectivity. We want senior secured exposure, disciplined underwriting, conservative leverage, broad diversification, manageable PIK income and management teams with a long record of protecting NAV.

In private credit, yield without credit discipline is simply a delayed capital loss. Oil, Gas, Royalty Trusts and Midstream Assets Energy income investments remain one of the more useful diversifiers in the portfolio. The oil market will always be volatile, particularly with geopolitical risk and rapid changes in supply expectations. Royalty trusts and upstream income securities are therefore not bond substitutes.

Their distributions can fluctuate with commodity prices, production volumes, reserve depletion and capital spending. Midstream assets are a different animal. Pipeline, gathering, processing, storage and export businesses are usually paid for moving molecules rather than making directional bets on the price of oil or natural gas. The most attractive companies have long-term contracts, high-quality counterparties, strategic assets, reasonable balance sheets and distribution policies supported by free cash flow.

The long-term natural-gas picture remains constructive. S. 6 billion in 2027. That does not mean every pipeline project will earn exceptional returns.

New Permian takeaway capacity could create periods of lower utilization and narrower basis differentials. The right approach is to own assets with strategic locations, solid contracts, low leverage and management teams willing to return excess cash through distributions and repurchases rather than chasing every new project. RMBS and CMBS: Very Different Risks Residential mortgage-backed securities continue to offer respectable income, particularly in carefully selected agency and nonagency positions. Higher mortgage rates have slowed refinancing activity, reducing prepayment risk and potentially improving cash-flow visibility.

Nonagency RMBS also benefit from a housing market supported by homeowners with substantial accumulated equity and mortgages generally originated under much stronger underwriting standards than those of the pre-2008 era. The risks are clear: unemployment, home-price declines, servicing problems and extension risk if rates stay higher longer than expected. These are securities where collateral quality and structure matter more than headline yield. Commercial mortgage-backed securities require greater caution.

Commercial real estate is recovering unevenly. Apartments, industrial properties, necessity-based retail and select hotels have much better fundamentals than older office buildings. Office remains the problem child. 86%.

This is not a sector for broad exposure. It is a security-selection market. Senior bonds backed by durable properties with capable sponsors and conservative loan structures can still provide attractive income. Weak office loans, highly leveraged transitional properties and loans with looming refinancing needs deserve skepticism regardless of the stated yield.

High-Grade Corporate and High-Yield Bonds High-quality corporate bonds remain useful holdings because all-in yields are still attractive. The problem is that spreads are not universally generous. Investors are being paid well for rate exposure, but they are not always being paid well for taking marginal credit risk. That argues for a barbell approach.

Own high-quality investment-grade bonds for dependable income and duration exposure. In high yield, emphasize BB-rated issuers, short-to-intermediate maturities, strong free cash flow and businesses that can survive without perfect capital markets. There is no need to reach for the lowest-rated credit simply to pick up a little more yield. Credit losses do not arrive evenly across a cycle.

They arrive in clusters, usually after investors have convinced themselves that the economy has eliminated recessions. Closed-End Fund Activism and Discount Arbitrage Discounted closed-end funds remain one of the portfolio’s most attractive areas because the opportunity does not rely entirely on rates, economic growth or equity-market direction. It rests on a simple fact: a fund can own a portfolio worth $1 per share while its stock trades for 85 cents. 04% discount.

Activism creates a potential catalyst. Tender offers, managed-distribution changes, liquidation proposals, open-ending campaigns and board pressure can narrow discounts and allow investors to realize a portion of NAV. The risk is that discounts can remain wide for long periods and may widen again after an activist event. The investment case is strongest when we can buy a sound portfolio at a deep discount and have a credible reason to believe that discount will narrow.

Community Bank Debt and Bank Risk-Transfer Securities Community bank debt securities remain an underappreciated source of income. Well-run community banks have generally entered this period with solid capital, conservative underwriting, meaningful core-deposit franchises and improving opportunities to deploy capital as the banking industry consolidates. The work is issuer-specific. Commercial real estate exposures, uninsured deposit concentrations, funding costs and local economic conditions all matter.

We want strong capital ratios, durable deposit franchises, sensible loan underwriting and institutions that can withstand a period of higher-for-longer rates. Bank credit-risk-transfer securities in the United States and Europe offer another specialized way to earn income. These structures allow banks to transfer a defined layer of loan-credit risk to investors while retaining the loans on their balance sheets. The market has expanded as banks seek capital efficiency without abandoning customer relationships.

The appeal is potentially strong income and exposure to diversified loan pools. The risks are complexity, embedded leverage, correlation risk and the fact that losses can rise quickly during a true credit downturn. These securities should be a carefully sized specialist allocation, not a substitute for investment-grade bonds. S.

S. fiscal story. Several Asian economies retain more manageable debt profiles, contained inflation and monetary-policy flexibility. Asian fixed income outperformed developed-market bonds in 2025, supported by lower regional rates, tighter spreads and a weaker dollar.

Currency remains the central issue. A sound sovereign bond can still be a disappointing investment if its currency moves sharply against the dollar. We will remain focused on quality, liquidity and countries with credible institutions and policy flexibility. Preferred stocks trading below par remain particularly interesting.

Buying a solid preferred below its $25 liquidation preference can provide a high current yield, potential capital appreciation toward par and eventual call protection if rates decline. The risk is that falling rates can encourage issuers to redeem high-coupon preferreds at par, limiting the upside for securities bought above par. That is precisely why below-par preferreds are preferable. Financial preferreds deserve careful credit work, but higher-quality bank, insurance, utility and real-estate issuers can offer compelling income when purchased at a discount.

S. interest rates is likely lower over the next two years. That does not mean rates must fall immediately. Inflation remains above target in important areas.

Federal deficits are enormous. Treasury issuance is heavy. Energy prices and AI-related capital spending can keep long-term rates elevated for longer than many investors expect. Recent bond-market weakness has been a reminder that the path will be volatile.

The deeper point is that both major economic paths lead toward lower rates. If AI and other technological advances work as promised, productivity rises, unit costs decline and the economy becomes more deflationary over time. The Federal Reserve eventually has room to lower rates. If the AI capital-spending boom disappoints, the outcome is different but the destination may be the same.

Capital spending contracts, valuations come under pressure, economic growth weakens and investors seek the safety of Treasuries. Rates fall because growth and risk appetite fall. Our base case remains a decline of roughly 75 to 125 basis points in long-term Treasury yields over the next two years, although no one should pretend to know the exact timing. 6% by the end of 2028.

For Easy Income, the implication is clear. We should continue collecting attractive current yields while selectively adding securities that benefit from lower rates. High-quality corporate bonds, preferred stocks below par, selected closed-end funds, agency mortgage securities, strong REIT credit and carefully chosen duration all fit that framework. The caution is equally clear.

A recessionary decline in rates can widen credit spreads and hurt weak borrowers. That is why we own credit, not just yield. The portfolio should be positioned for lower rates, but it must earn the right to be there through strong balance sheets, sound collateral, reasonable leverage and securities bought at prices that provide a genuine margin of safety.