Market Insights from the Bramshill Investments Team.

2018 March Portfolio Commentary

Posted by Arthur DeGaetano on April 17, 2018

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

The Bramshill Income Performance Strategy produced a total return of -0.21% in March putting our YTD returns at +0.01%. All liquid markets experienced significant volatility in 1Q18.   Considering the 10-year US Treasury yield traded in a +50bps range and the S&P 500 suffered a 10% drawdown peak to trough, our portfolio held up fairly well in the quarter. 

Using the Bloomberg Barclays Indices, for 1Q18, the Long U.S. Treasury Index was down -3.36%, the U.S. Aggregate Index was down -1.46%, the Long U.S. Corporate Index was down -4.05% and the U.S. High Yield Index was down -0.86%.  

For the past year, we have highlighted interest rate risk as the biggest threat to principal loss. A hallmark of the past quarter has been that higher yields have been a catalyst for negative returns in most risk markets. Additionally, US Treasuries have not acted as a safe haven during this period as yields have remained elevated even in times of the greatest volatility in the equity market. During the month, we maintained our defensive position of the past few months and made very few asset allocation changes to the portfolio. Additionally, we have been waiting for more favorable entry points for risk. Our largest allocation remains in fixed to float preferred securities at 50% of the portfolio. These securities have little interest rate sensitivity and attractive yields. One example of a recent addition to the portfolio is JPM 5.3% preferred’s (callable 5/20) which we purchased at approximately 4% yield to call.  If this security is called, the investor will have realized an approximate 4% annualized yield for 2 year risk.  If the security is not called, then the coupon floats at LIBOR +380 (currently 6.13% yield, which would be very attractive, especially in a rising rate environment). 

In other sectors, we have a minimal allocation to municipals at 1.5% in the form of one closed end fund.  Our corporate exposure remains at a 15% allocation.  Investors are not being paid for the duration risk in municipals or investment grade corporates.  Hence, the majority of our corporate exposure is allocated to closed end floating-rate senior loan funds which are attractive from both a yield and discount to NAV basis. Overall our portfolio duration decreased to 0 years, our shortest duration since inception. Our portfolio yield remains attractive at 4.06% yield to worst.  We are closely monitoring inflation measures as the economy is strong and pushes toward full unemployment status. We are very conscious of interest rates tailing, as happened during the summer of 2013, which could weigh upon all asset classes.  We will likely stagger our entry points for risk in all fixed income over the next couple 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