BRAMSHILL BLOG: From the Desk of Art DeGaetano
In March, volatility was elevated in both the credit and rate markets due to two events:
- The Fed's first rate hike of the year
- Congress' failure to pass healthcare reform
The 30-year U.S. Treasury yield rose over 20 bps during the first few days of the month, before retracing that entire move as the month ended. This equated to a $5 price move both up and down in the bond. The team at Bramshill Investments believes such volatility will be pervasive this year and highlights the advantages of active management.
When the 30-year Treasury reached a 3.20% yield, we made a tactical allocation to this sector based on both fundamental and technical factors. We closed this position out near the end of the month after the long bond had rallied over 4% in a week.
In terms of asset class exposure, we made very few adjustments to the portfolio in March. We still have minimal municipal exposure due to the significant rate sensitivity, unattractive yields and legislative uncertainty in that market. We decreased our exposure to investment grade corporate bonds from 32% to 24% after taking profits in AAPL five-year paper and having two of our positions (RJD 6.9 ’42 and AET 4.25 ’36) called. Our high yield exposure remained steady at 4% of our portfolio, as we believe yields in that market (with the index yielding less than 6%) are not compensating investors for the current risk.
Our preferreds exposure also remained steady at 22% of our portfolio. We expect to add to preferreds in the coming weeks on any weakness, as strong credit fundamentals and >6% yields make this asset class attractive. However, we are mindful of the rate risk of this sector and will thus look for opportune entry points.
The structures which most attract us are high coupon, short callables or fixed to float structures. We added one new position in AXP 5.2% perpetual fixed to float. We will selectively add similar positions in the weeks ahead as we deploy our large short-term Treasury position.
In terms of performance, preferreds and U.S. Treasuries contributed most significantly to our March return (accounting for approximately 20 bps each of our total return). We are mindful of the many risks to both the credit and rate markets and believe a conservative portfolio is warranted at this time.
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This commentary is provided by Bramshill Investments, LLC for information purposes only and may contain information that is not suitable for all investors. Certain views and opinions expressed herein are forward-looking and may not come to pass. Investing involves risk, including the potential loss of principal. Past performance may not be indicative of future results, which are subject to various market and economic factors. No statement is to be construed as an offer to sell or solicitation to buy securities or the rendering of personalized investment advice.