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.