BRAMSHILL BLOG: From the Desk of Art DeGaetano
May was a volatile month for risk assets as the S+P 500 Index sold off by -6.35% and the 10-year US Treasury yield fell by -33bps, 2.50% to 2.07%). The Bramshill Income Performance Strategy held up relatively well, giving back -0.25% on the month, which brings our YTD performance +6.34% net.
We entered the month positioned defensively, and made very few shifts in our portfolio, thus maintaining a conservative risk profile. Trade war rhetoric and a slowdown in US and global economic data affected prices for risk assets. We remain positive on US credit risk and cautious on interest rate risk at current levels. However, prices in the credit markets did not correct enough to fully reflect the heightened risks of a slowdown. Therefore, we have reduced risk and increased our liquidity position in recent weeks.
The duration of our portfolio is currently 1.65 years, with a current yield of 4.56% and a yield-to-maturity of 5.01%. We reduced our largest allocation in preferred securities with attractive yield characteristics and manageable durations from approximately 39% to 37.5% of the portfolio. We reduced our investment grade corporate allocation from approximately 11% to 9.5%. Approximately 12% of our portfolio remains allocated to municipal closed-end funds. Although we are not favorable toward individual cash municipal bonds, closed-end funds in this sector still offer attractive yields and discounts to NAV approaching 10-12%. We believe such discounts can narrow significantly in the months ahead. Our allocation to high yield and leveraged loans remains stable at approximately 9% of the portfolio. Cash and short-term US Treasuries represent approximately 29% of the portfolio.
This position is a reflection of our cautious view of current prices in the credit markets where investors are not being paid with a “margin of safety” given the risks. We foresee the Fed on hold for the next quarter. Although there has been recent speculation for rate cuts in the near term, we believe the Fed will be more data dependent. With the economy still growing and relatively healthy fundamentals we do not see a catalyst for the Fed to move in the next quarter. We expect volatility to be elevated in the coming months as uncertainty looms. There will be ample opportunity to invest at more favorable prices. Consistent with our views, we anticipate our portfolio collecting healthy income, producing positive returns and being opportunistic when prices become more attractive.
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.