Market Insights from the Bramshill Investments Team.

2020 April Portfolio Commentary

Posted by Bramshill Investments Team on May 19, 2020

BRAMSHILL BLOG:  From the Desk of Bramshill Investments


The Bramshill Income Performance Strategy performed very well in April, up +4.68% benefitting from our repositioning of the portfolio. Entering this year we were cautiously awaiting opportunities because, from a historical perspective,  yields were low and credit spreads were tight.  In March, much-publicized developments with regard to COVID-19, kept us in a defensive position in order to protect capital in such a volatile and ever-changing environment.

All four asset classes in which we invest quickly went from two standard deviations rich (across several of our quantitative models) to two standard deviations cheap in a matter of days. In April, however, we were in a position to begin to allocate capital as credit spreads had moved substantially wider.  While we have become more constructive on credit spreads due to the significant recent actions of both fiscal and monetary policy, our view is that the riskiest segments of the market will continue to face headwinds and significant defaults.  Therefore, credit selection and patience are paramount in the current environment. The largest shifts in our portfolio were from an opportunistic rotation out of cash/ST US Treasuries into investment grade corporate bonds and  preferreds.  We reduced our cash/ST US Treasury position from approximately 46% to 31%.  Our investment grade corporate exposure increased from 10% to 16% of the portfolio.  Our preferred exposure went from a 30% allocation to 34% of the portfolio.  Our high yield corporate exposure was stable at 9% of the portfolio.  The high yield corporate bond market will experience significant defaults in the coming months due to the coronavirus pandemic.  Therefore, we are cautious on adding generic high yield risk.   We believe it is more attractive to allocate to subordinated tranches of investment grade names which have demonstrated access to the capital markets, and are in attractive industries less exposed to the repercussions of COVID-19. In April, the portfolio benefited from such positions and we will continue to add such names opportunistically. In municipals, we maintained an approximate 5% position in municipal closed-end funds which remain priced at fair value in our opinion. 

Overall across the credit markets, prices moved up rapidly in April although we do not think it will be a “one-way train”.  While we believe in a recovery, we envision the trajectory to be more “U-shaped” than “V-shaped” in nature.  In regards to interest rates, while yields are historically low, there is probably not a short-term catalyst to move them appreciably higher.  Therefore, our duration moved slightly from 2.7 years to 3.8years.  As we allocate our liquidity position in the coming months, we expect to continue to increase our yield by 100-200bps as we patiently build out a 5%-7% yielding type of portfolio.  The current yield on our portfolio is 4.79%, with a YTW of 3.74%.  We continue to not sacrifice credit quality as the portfolio has an average rating of A-.  We remain liquid and nimble in our strategy as we believe the current credit environment is ripe with opportunities as the year continues to unfold.


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