Market Insights from the Bramshill Investments Team.

2017 June Portfolio Commentary

Posted by Arthur DeGaetano on July 18, 2017

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

Market Insights from Bramshill Investments: June was a fairly benign month for the Bramshill Income Performance Strategy. The Strategy returned -0.08% in June, bringing our year to date return in the Income Performance Strategy to +1.52% net. 

Most fixed income asset classes were slightly positive on the month, however, there are numerous crosscurrents in the market as the result of recent mixed economic data and market expectations of potential Federal Reserve rate hikes later this year. In addition, uncertainty around the unwind of the Fed’s balance sheet presents a warning sign for fixed income investors in the coming months. Therefore, the portfolio is positioned defensively with regard to interest rates. 

We are constructive on the economic outlook and believe the interest rate market is not compensating investors for taking duration risk. Municipal bonds, investment grade credit, long-dated U.S. Treasuries and perpetual preferred securities are all investments which are at a critical juncture and risk significant principal losses at current market prices. 

Our portfolio has the shortest duration since our Strategy’s inception (under 1-year) at this time. 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.

We have approximately 35% allocation to limited duration preferred securities, mainly in fixed-to-float structures and high coupon, short callable structures. One note, a portion of this preferred allocation is in convertible preferred securities in the energy sector. We believe these securities are attractively priced and represent better value than corporate bonds in the same capital structures.

On the month, we took our investment grade corporate allocation from 25% to 17% as ARCC 5.875% 10/22 were called and we sold two positions: Legg Mason 5.625% 1/44 and Marriott 4.5% 10/34 which had each rallied over 10 points from our initial purchase price.

We reduced our high yield exposure from 15% to 12% of the portfolio as we sold Lennar 4.875% 12/23. Our entire high yield exposure is now being expressed in the form of four closed-end funds (two loan closed-end funds and two high yield closed-end funds).

Finally, we have approximately 28% of our portfolio in cash and securities with maturities of less than 1 year. 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 solicitation to buy securities or the rendering of personalized investment advice.

Topics: From the Desk of Art DeGaetano, Commentary