Market Insights from the Bramshill Investments Team.

2017 May Portfolio Commentary

Posted by Arthur DeGaetano on June 21, 2017

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

Market Insights from Bramshill Investments: The Bramshill Income Performance Strategy returned -0.64% for the month of May, putting YTD returns at +1.60% net. With the backdrop of a robust global economy and the Federal Reserve tightening policy, our view has been that interest rates would gradually move higher in 2017.

The main detractors in our portfolio for the month came from our Treasury hedge (approximately -35 bps) and our cyclical energy exposure (approximately -50 bps). Despite the recent U.S. Treasury rally, we continue to favor taking credit risk over rate risk in our portfolio. We maintain a very short duration of 1.46 years with a current yield of 4.74%. We believe long-term U.S. interest rates are currently at the low end of a 50 bp range.

Although the upside risk bias on global growth and inflation this past month has receded, equities are trading at historic high levels. Therefore, the Bramshill team believes there will be higher demand for better-yielding fixed income in 2H17.

This entire year we have chosen to express our constructive credit view by steadily increasing our allocation to the preferred market (now approximately 30% of the portfolio) rather than being overly exposed to the high yield market. We hold primarily two types of preferred securities:

  1. Fixed to float structures
  2. High coupon short callable structures

Our allocation to high yield (now approximately 15% of the portfolio) has been expressed mainly through two closed-end loan funds and two closed-end high yield funds. Even though we are neutral on high yield as an asset class, our closed-end fund positions have an average 8% discount to NAV and carry roughly a 150 bp yield cushion above the underlying individual cash securities.

Our combined positions in short-term corporate bonds, short-term U.S. Treasury bonds and cash represents approximately 29% of our portfolio. We maintain this defensive position awaiting opportunities to reposition in the coming months.

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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