Market Insights from the Bramshill Investments Team.

2018 July Portfolio Commentary

Posted by Bramshill Investments Team on August 16, 2018

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

The Bramshill Income Performance Strategy returned +0.46% net in July, contributing to a +2.72% YTD total return. In July, interest rate volatility continued to weigh on many fixed income assets as the 10-year US Treasury yield moved 14 bps higher on the month. This has been the biggest impediment to fixed income returns this year.  However, corporate bond spreads tightened on the month as they recovered from extreme levels.  We still favor credit risk over interest rate risk because the US economy has demonstrated consistent strength even in the face of potential trade wars and emerging market uncertainty.   We believe such volatility, which has been pervasive this year, highlights the advantages of active management. 

In terms of asset class exposure, we made very few adjustments to the portfolio in July.  Our largest allocation remains in fixed to float preferred securities at 40% of the portfolio.  However, we did partially exit a portion of this alloca­tion as we took profits in a few names which had reached peak valuations.  Some of these names have tightened significantly over the past few months which has spurred our caution.  Our high yield allocation remained consistent at 14% of the portfolio. High yield performed well in July as corporate profits remain robust.  The majority of this allocation continues to be in floating rate loan closed end funds.  

Our investment grade allocation remained at 3% of the portfolio. Although IG corporates performed well last month, we believe this sector remains too rate sensitive for a meaningful allocation.  We still have minimal municipal exposure due to the significant rate sensitivity, unattractive yields and significant pension issues in that market.  We have allocated marginally to some municipal closed end funds which have significant discounts to NAV and have been the victim of retail outflows this year. We also increased our US Treasury hedge from 2% to 6% of the portfolio to account for this closed end fund exposure.  Our short-term US Treasury allocation is now approximately 30% of the portfolio.

Our portfolio duration moved down slightly in June from 1.65 years to 0.53 years while the portfolio maintained a yield to worst of 3.91% (current yield 4.30%). Overall, we will need a better risk/reward return opportunity to present itself in these fixed income asset classes for us to reallocate and shift the portfolio to a more aggressive profile.

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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