BRAMSHILL BLOG: From the Desk of Art DeGaetano
The Bramshill Income Performance Strategy produced a total return of -0.51% in August, putting our YTD returns at +7.38%. The month of August was challenging as most markets experienced significant volatility. In the first half of the month, the S&P 500 shed -4.7% while the 10 year US Treasury yield dropped by -48bps in the same period (2.01% to 1.53%).
This volatility was caused by concerns in connection with global trade, Brexit and global growth. In the past three months, we have been de-risking the portfolio due to extended valuations in fixed income. Both credit risk and rate risk were extremely elevated in August. As we stated last month, “our appetite for risk has been diminished in recent weeks…valuations and potential for negative market conditions for risk assets has led us to maintain caution and position the portfolio defensively.” As a result, we reduced our exposure to municipal closed-end funds from approximately 7% to 3.8% of the portfolio. If you recall, this position had been as high as 15% of the portfolio earlier this year when it was one of our highest conviction positions. After these funds appreciated 15-20% in total return, we decided to take profits and reduce this exposure. As we reduced our municipal closed-end fund exposure, we also reduced our US Treasury hedge within the portfolio. Finally, we increased our liquidity in the Strategy by increasing our cash/ST US Treasury allocation from 28% to 35% of the portfolio. Most of this liquidity is positioned in US Treasury bills which still offer yields approaching 2%. As this is only a “placeholder”, this is an attractive alternative in the short-term until fixed income valuations correct. Our exposure to the preferred sector increased slightly from 39% to 42% of the portfolio. This sector continues to represent the best risk/reward sector for total return at this time. Investment grade and high yield corporate bond exposure were both stable at approximately 9.5% of the portfolio, respectively.
September is historically a very heavy new issue month. We expect to redeploy some of our liquidity position if the calendar prices at attractive concessions. We will maintain our discipline on seeking value and not chasing prices in the current volatile environment where there is a high probability of loss.
Interested in more market insights from the Bramshill Team? Download our Quarterly Market Commentary to see why we believe the current credit environment is ripe with both opportunity and caution.
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.