Shares of alternative asset managers CG and BX performed well in the context of the broader market recovery.
With Trump in office, the private equity space is heating up in anticipation of more merger and acquisition activity. Alternative managers generate profits through fees and successful realizations of their investments.
On the fee front, both CG and BX are showing good progress in terms of attracting funds from investors. In terms of realizations, performance within the funds they manage is trending well.
From a dividend perspective, asset managers have minimal capital spending requirements and tend to generate strong cash flows. Operating expenses are primarily related to paying the investment professionals and administrative staff that they employ.
As a result, we anticipate strong operating performance to translate into healthy dividend growth in the years ahead for both CG and BX.
WEC is a well-managed electric utility that operates in Wisconsin under a regulatory regime that is widely considered among the most favorable in the U.S.
One of the reasons we prefer WEC to other options in the utility space is that the Wisconsin region has successfully attracted technology and manufacturing companies—in part because of WEC’s ability to meet their energy needs.
The I-94 corridor connecting Chicago and Milwaukee may not get a great deal of national attention, but it has emerged as an important commercial hub. The region has much to offer, including a highly educated talent pool, relatively lower land and residential housing costs, and a stable climate.
Majors tech players like Microsoft and Amazon have been developing data centers and other facilities in the area, creating growth opportunities for WEC, which powers their operations.
WEC shares came under pressure in December as long-term interest rates rose. The recovery in January reflects the improvement in the interest rate environment.
DLR shares sold off sharply after the DeepSake story began to circulate. We suspect REIT investors took a “sell first, ask questions later” approach given DLR’s close linkage to the AI build-out theme as a leading data center operator.
We view the recent weakness in DLR as a buying opportunity. As noted in the above discussion on DeepSeek, we continue to have conviction in the long-term AI data center build-out story. As a major owner and developer of data centers, DLR will continue to participate in that.
It is important to recognize that DLR’s business model is based on long-term contractual arrangements with investment grade tenants. This offers a high degree of predictability to its earnings in the years ahead.
There is a severe shortage of data center capacity in the industry now, which gives landlords like DLR pricing power and the ability to generate robust organic growth as leases reset from much lower levels that prevailed in years past.
Investors can continue to speculate about the long-term implications of DeepSeek, but the cash flow picture at DLR for many years head remains very much intact. DLR’s current valuation does not require aggressive assumptions about data center demand growth.
SRE is a Texas-based utility that has some exposure to natural gas infrastructure projects. The DeepSeek developments also led investors to sell SRE as part of a broader wave of negative momentum directed at energy providers to AI data centers.
Similar to DLR, we would view the current wave of negative sentiment that has affected SRE as an opportunity.
Upward pressure on interest rates and DeepSeek-related questions around the long-term AI investment case have weighed on the Income Builder portfolio over the past two months.
Despite these recent setbacks, the portfolio has delivered an approximately 20% total return since inception—in line with the S&P 500. We continue to have high confidence in the diversified collection of income-generative stocks we have assembled in this portfolio.
