Market Insights from the Bramshill Investments Team.

2019 September Portfolio Commentary

Posted by Bramshill Investments Team on October 16, 2019

BRAMSHILL BLOG:  From the Desk of Art DeGaetano

LogoSeptember was a challenging month for many fixed income markets. Meanwhile, The Bramshill Income Performance Strategy performed relatively well returning +0.43% on the month, bringing YTD returns to +7.85%. During the month, the yield on the 10-year US Treasury increased 17 bps from 1.49% to 1.66%. Using the Bloomberg Barclays Indexes, the US Aggregate Index was down -0.53%, US Treasury Index was down -0.85%, the US Corporate Index was down -0.65%, and the US Municipal Index was down -0.80%. 

Our out-performance was due to our portfolio positioning which has become more defensive in the past few months. In addition to our often discussed concerns about interest rates, we have maintained caution due to extended historically tight spread levels and complacency in the markets which likely warrants a repricing of risk assets. Our fixed to float preferred position, while still substantial, now stands at 37% of the portfolio (down from 42% in August). These securities have performed as expected, with minimal price volatility and attractive income generation. High yield still offers little cushion for price volatility and spreads remain close to historic tights. There is not much margin for error at current valuations. We have only approximately 9.5% of the portfolio allocated to this asset class, mostly in high yield closed end funds. We need to see a significant repricing to become interested in high yield due to relative value considerations. Our allocation to investment grade corporate bonds remained stable in September at approximately 9.5% of the portfolio. Municipal bonds suffered significant price declines in September due to their high correlation to US Treasuries. We have been decreasing our exposure to municipals for the past few months as we have been taking profits in certain municipal closed-end funds (currently 2.3% allocation, down from approximately 10% allocation as of June 30th). Most of these closed end funds have produced returns in excess of 15% IRR’s YTD, thus warranting a reduced allocation.

Although US Treasury yields are at historic lows, and we believe the shape of the US Treasury curve is not compensating investors to take duration risk, we are not running an interest rate hedge at this time. As of the end of September, approximately 42% of our portfolio was allocated to short term US Treasuries. The last time we had this type of liquidity position was 4Q18 when there was a substantial repricing of risk assets. We were able to deploy this liquidity at very opportunistic prices in November and December of 2018. The dynamics in the market for the rest of 2019 could set up very similarly to last year. This could lead to significant opportunities to invest within the next few months. We shall be patient in our assessment.

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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: Commentary