Market Insights from the Bramshill Investments Team.

2017 October Portfolio Commentary

Posted by Arthur DeGaetano on November 21, 2017

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

The Bramshill Income Performance Strategy returned -0.99% for the month of October, putting YTD returns at +1.64% net.

With the backdrop of a robust global economy and the Federal Reserve’s tightening policy, our view has not changed – that interest rates would gradually move higher in 2017. This view has recently been affirmed by strong employment and industrial production figures and potentially stimulative fiscal and tax policy.

The main detractor to our portfolio for the month came from our 11% position in five energy convertible preferreds which produced -0.55% drag in performance. We believe these positions represent good value at current levels, especially when compared to corporate debt in the same capital structures, and should recover in the weeks ahead. 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 approximately 1 year with a current yield of 5.80%. We believe long-term U.S. interest rates are currently below fair value. There continues to be an upside risk bias to both global growth and inflation and there is poor risk-reward in reaching for yield with duration in sectors such as U.S. Treasuries, investment grade corporates and municipal bonds. In particular, we believe the banking sector’s performance this year reflects the economy’s strength which is one of many reasons for our large allocation to preferred securities.

In October, we maintained our largest sector allocation to the preferred market (now approximately 50% of the portfolio) rather than being overly exposed to the high yield corporate bond market. Most of these preferred issues are fixed-to float-structures with attractive yield characteristics and limited rate exposure. We slightly reduced our allocation to high yield corporate bonds and levered loans (now approximately 13% of the portfolio). We have expressed this allocation mainly through two closed-end loan funds and two closed-end high yield funds which average 10% discounts 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 represent approximately 10% of our portfolio.

We believe U.S. fixed income is in a secular shift, and we are likely to maintain this defensive position on interest rates as we await 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 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