BRAMSHILL BLOG: From the Desk of Art DeGaetano
Market Insights from Bramshill Investments: July was a solid month of performance for the Bramshill Income Performance Strategy. The Strategy returned +0.69% net in July, bringing our year to date return in the Income Performance Strategy to +2.22% net.
July was characterized by extremely low volatility in most markets. Most fixed income asset classes were slightly positive on the month. However, as highlighted on our recent quarterly webinar, we see interest rate risk as concerning. Therefore, we maintained a very defensive position in the portfolio with regard to interest rates.
While the portfolio duration remains low at 1.0 year, the current yield on the portfolio stands at a healthy 5.89% while the yield to worst is 4.36%. We believe such positioning allows for judicious exposure to credit without excessive exposure to interest rate corrections. Our positioning is justified by our constructive economic outlook. As we stated in our 2Q17 Outlook, the current economic "metrics will provide the Federal Reserve justification to continue to raise the Federal Funds rate and shrink their holdings of U.S. Treasuries and mortgage-backed securities. This sets up for a much different investment landscape than is currently priced into the U.S. fixed income markets."
We have very limited exposure to municipal bonds, investment grade credit, long-dated U.S. Treasuries and perpetual preferred securities because these investments have significant risks of principal drawdowns. We have positioned the portfolio in a way that will participate on a total return basis with constructive economic numbers and yet, will weather an increase in interest rates.
In July, we increased our largest sector allocation to preferreds from 35% to 57%. Most of this preferred allocation is in fixed-to-float structures, some of which came in the new issue market. We believe these structures are attractive because they offer considerable fixed yields for limited periods, yet, they convert to attractive floating rate coupons in years subsequent. Our limited allocation to convertible preferred securities in the energy sector remained constant and performed well in July. We are still constructive on these names.
Our high yield exposure remains at 12% of the portfolio as we see limited opportunities in that market. Our entire high yield loan and bond exposure is currently being expressed in the form of four closed-end funds (two loan closed-end funds and two high yield closed-end funds).
Finally, with 54% of our portfolio in securities with less than one-year duration, we are well positioned for a correction in the rates market in the months ahead.
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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.