BRAMSHILL BLOG: From the Desk of Art DeGaetano
The Bramshill Income Performance Strategy produced a total return of +0.68% in July, putting our YTD returns at +7.93%. All liquid markets experienced significant volatility in July due to many conflicting headlines regarding China, Brexit, and the Federal Reserve.
Recently we stated in our Quarterly Letter, “As we position our portfolios for the 2nd half of 2019, our investment team is highly focused on our internal liquidity analysis and a theme of remaining ‘nimble’.“ We explained that it is an unusual condition for risk assets to rally (S+P 500 reached an all-time high on July 26th at 3027) and US Treasury yields to experience significant declines within the same time period. As a result, our appetite for risk has been diminished in recent weeks. Recently, valuations and potential for negative market conditions for risk assets has led us to maintain caution and position the portfolio defensively.
Therefore, we made very few asset allocation changes to the portfolio in July and we allowed our liquidity position to grow. We increased our weighting to short-term US Treasuries and cash from approximately 28% to 30% of the portfolio. Our largest allocation remains in fixed to float preferred securities at 39% of the portfolio. We purchased a new issue in ALL 5.10% PFD and we reduced positions in VLY and CFG preferred securities. One shift of note, we reduced our allocation to municipal closed end funds during the month.
If you recall, when we allocated to these funds in 4Q18, they were trading at the biggest discounts to NAV in the past 5 years and offered very attractive yields (approximately 6%) relative to corporate bonds. In 2019, many of these funds have posted total returns in excess of +15% YTD. Due to their performance and relative value at this time, we reduced these municipal closed end fund positions steadily in recent weeks. Our exposure to these funds now represents an approximate 7% allocation within the Strategy down from 9.5% earlier in the month. High yield corporate and investment grade corporate exposure each remained stable at 9.5%, respectively this month. Our portfolio yield to worst remains attractive at 3.85% (4.61% current yield). Increased volatility in the credit and rate markets will likely lead to better entry points for risk in the coming weeks.
We are paying close attention to economic data, the changing language of the Fed as well as trade negotiations. We will likely stagger our entry points for risk in all fixed income over the next couple months.
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.