Market Insights from the Bramshill Investments Team.

2017 December Portfolio Commentary

Posted by Arthur DeGaetano on January 19, 2018

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

The Income Performance Strategy returned +0.17% in December contributing to a +1.59% net total return for 2017. Most fixed income asset classes were slightly positive on the month, however, there are numerous cross currents in the markets as a result of recent strong economic data.

We see three rate hikes in 2018 with a 3% 10 year U.S. Treasury yield. However, there is a possibility that the Fed moves at a more measured pace and allows the economy to run “hotter” which could cause long-end interest rates to rise faster than many market participants expect.

The Bramshill portfolio continues to be positioned defensively in anticipation of such a move in rates. We are trying to position the portfolio in a way that will participate on a total return basis by weathering an increase in interest rates. Through our portfolio construction, we have tried to accomplish this in two ways. First, the portfolio is positioned in credits that should benefit from a rise in rates. Second, we have selected securities whose structures can withstand higher rates. Additionally, most of the securities in our portfolio are high credit quality. The average credit rating of the portfolio is BBB-.

We find the other rate-sensitive asset classes to have a poor risk-reward profile at current prices. Therefore, we have very limited exposure to municipal bonds, investment grade corporates and U.S. Treasuries. Approximately 52% of our securities are fixed-to-float preferred structures with limited durations trading to short-dated calls. This portion of the portfolio contributed +15 bps on the month. We also have approximately 12% of our portfolio allocated to convertible preferred securities in the energy sector. These convertibles contributed to portfolio performance in December of approximately +18 bps as many of the names rallied given how levered they are to the underlying commodity (crude). There are four high yield and loan closed-end fund positions in the portfolio which contributed +13 bps to performance in December as some of the NAV discounts of such funds closed towards the end of the month. Our only detractor for the month was our rate hedge which detracted -30 bps for the month. As of the end of December, the duration of the portfolio was approximately 0.35 years with a current yield of approximately 5.52%.


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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 a solicitation of an offer to buy securities or the rendering of personalized investment advice. Stated performance is reflective of realized/unrealized capital gains/losses and investment income achieve in composite accounts, net of investment management fees and expenses for trading, custody and fund maintenance (where applicable). Returns reflect the reinvestment of dividends and other such distributions and performance for January 2009 through April 2012 depicts actual returns generated by the strategy while managed by the Firm’s Chief Investment Officer at an unaffiliated investment firm. All information is accurate as of the date of publication and is subject to change without notice.

Topics: From the Desk of Art DeGaetano, Commentary