Market Insights from the Bramshill Investments Team.

2018 December Portfolio Commentary

Posted by Bramshill Investments Team on January 14, 2019

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

The month of December witnessed significant dislocation in risk assets. The S&P Index, the most visible risk barometer, witnessed its largest monthly drawdown (-9.03%) in the past ten years.  Both the high yield and preferred markets were down approximately 2% for the month and leveraged loans sold off approximately -3.2%.  The Bramshill Income Performance Strategy gave back -118bps for the month, which brought the 2018 year end return to +1.40% net.

 Although we had been positioned all year for a rising interest rate environment, we fortunately removed our moderate US Treasury short that we had been carrying as a hedge.   In recent commentaries, we referenced an approximate 25% position in cash and short-term US Treasuries as we waited for better entry points on risk assets.  In the last two weeks of December, we deployed 2/3rds of this “cash position” across existing allocations in the portfolio.  Prices and yields on many securities were in freefall and represented significant opportunities that we have not seen in many years. The biggest increase was in our preferred allocation that went from approximately 40% to 55% of the portfolio. With regard to this allocation, our thesis is that US financial institutions may reduce earnings forecasts for 2019, however, their balance sheets and credit quality remain robust and we are not concerned about the safety of the coupons on these securities.  Additional allocations were made across various existing closed end fund positions as we believe end of the year tax loss selling was overdone. As a result of this repositioning, we have increased the yield on our portfolio by more than 200bps from six months ago (currently 6.20% yield to worst) without sacrificing credit quality (currently average rating of BBB) or markedly increasing the duration (currently 1.1years) of our portfolio. 

At Bramshill we try not to get emotionally tied to investment positions and purely look to manage risk across various environments like we have done in this strategy over the past 10 years.  We are currently excited about this environment as many securities are priced with a low loss probability and yet are giving us a significant increase in yield when compared to most of 2018.  This is a good environment for our strategy and in the quarter ahead we anticipate volatility across many markets and remain opportunistic in repositioning our capital.

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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: Commentary