Allspring's Exclusive Quarterly Update for Wells Fargo Advisors

Jim Argabright: Well, it turns out there are more than just seven stocks in the market. The Mag 7 was weaker in the third quarter, up just about 2%, while a broader basket of stocks showed great participation as the equal weight S&P 500 was up just under 10%. Our diversified portfolios of dividend growers benefited from, in our opinion, this long overdue increase in both market breadth and rotation and leadership. The Managed DSIP suite strongly outperformed the S&P 500 in the third quarter. Managed DSIP1 returned 9.7% for the quarter, compared with 5.9% for the S&P 500. Year to date, the Managed DSIP suite is now up in excess of 13.5% as of the end of the third quarter. Importantly, Managed DSIP1 had seven dividend increases in the quarter at 7.5%. For the year, we've now got 36 increases at 6.7%. Only one company passed. That was Norfolk Southern. I'll come back to them in a little bit. In terms of the core, both sector allocations and stock selection drove the outperformance. The underweight allocations to both communication services and information technology was a benefit. The portfolio outperformed the benchmark peers in 7 of 11 sectors, led by our consumer discretionary holdings. One name I want to highlight is Lowe's, the major home improvement retailer. It's been sort of an up and down year for the shares this year, which we would attribute a lot to the uncertainty surrounding the direction of the U.S. economic growth. That said, still low unemployment, interest rate cuts, and real wage growth provide a strong backdrop to what has been a very long and weak housing market. We had several trades within the quarter. We increased our positions in Broadcom and Nike, added a new position in Carlisle, and sold our remaining position in Norfolk Southern. Broadcom is a semiconductor name. The name has a moderate dividend payout, averaging about 40% or so free cash flow, stemming from industry leading profit and free cash flow margins. It's a leading position also in the design of custom semiconductors for AI with applications for customers like Alphabet and Meta. The company actually expects AI related revenues to double this year and account for about 20% of its total sales. It’s grown its dividend around 15% per year over the past three years. New position for us in Carlisle companies. They're a leading manufacturer of roofing and weatherproofing products and systems. There's a number of factors we think support dividend growth in the future for this company. It transitioned over the last couple of years from a somewhat disjointed and diverse industrials company to really more just focusing on those core building products systems. They've improved both their margins and their ROIC. The roofing industry itself has also become more consolidated. So, that's a benefit as there's been greater focus on margin improvement and disciplined pricing. Finally, and very importantly, on the capital allocation program that management has been successful in implementing, it's resulted in one, a low dividend payout that's about 25% of their EPS, effective share repurchase program, and then strategically sound acquisitions. And finally, the last trade that we had was we sold our remaining position in Norfolk Southern Company. The company has really struggled with a number of issues that continue to impact it. One, the 2023 train derailment is still an issue. It has very poor customer service metrics. It has sluggish demand and industry low profit margins. So, we did make the decision to exit the rest of that position. If I turn quickly to an outlook, we would expect some near-term choppiness for the rest of the year. But if third quarter earnings, which are just beginning, are solid, we think that will support the market and it will drift higher. Our view that the Fed (Federal Reserve) will be cautious in easing interest rates has not changed. And finally, on a company level, we continue to monitor the upcoming amount of debt that is due in both 2025 and 2026 and extremely focused on balance sheet strength of the companies that we own.

Margie Patel: In Diversified Capital Builder, we use a top-down approach in selecting investments. We look at industries that we think have characteristics to grow faster than the economy. Then, we look for companies in those industries that we think have a special expertise that will allow them to outperform and concentrate there. The industry weightings are not tied to any index weightings. We weight the industries according to where we see relative value. But this approach does not result in a high turnover rate, although we gradually change the sectors that we’re exposed to. For the 12 months ended December 2023, our turnover rate was 50%. And for the 12 months ended September 30, 2024, it was 30%. We have positioned the fund for our positive outlook for the economy, which we think will grow between 1.5% and 2.5%, allowing Standard and Poor's revenues to increase about 4% and corporate profits to increase about 8% to 10%, which we think is sufficient to allow the market to continue to advance over the balance of the year. We continue to focus on stocks in those industries, which we think are growing in a secular fashion and have the ability to continue to grow faster than the economy overall. Those would include industrials, technology, and materials, which we think have those characteristics. Right now, our largest sector is technology. We continue to feel there are growth characteristics from artificial intelligence, automation, communications, aerospace, and defense. Our largest holdings are Broadcom, Advanced Micro Devices, Nvidia, and Microsoft. Industrials our second largest sector. We feel the sector has long-term growth characteristics from reshoring, increased capital expenditures, expanding and strengthening the electrical grid, and also communications, aerospace, and defense. Our largest holdings are Emerson Electric, Leidos, Curtiss-Wright, and Timken. This year, we've expanded our holdings in the energy sector, our third largest sector, particularly in gas-related companies who will benefit from increasing use of gas as a source for baseload electric power consumption in the electrical grid and also for increasing demand from LNG for exports. Our largest holdings are Taga Resources, Oneok, Cheniere, and Schlumberger. About 85% of our holdings currently are in equities and about 15% in high yield bonds rated BB of U.S. domestic companies. We continue to feel that returns from the equity market will outperform that of fixed income, so, therefore, we're at the rather high end of our equity weighting. But we do think the bonds have a very strategic value with yields between 5.5% and 6.5% and low volatility. We feel that they give us the flexibility on the equity side to invest in stocks that may have a low dividend and high potential for total return, so the income earned from bonds will supplement the total dividend power of the fund. And right now, we have about 10% of our holdings where we have both the bonds and the stock of the same company.