Market Insights from the Bramshill Investments Team.

2020 January Portfolio Commentary

Posted by Bramshill Investments Team on February 19, 2020

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

LogoThe Bramshill Income Performance Strategy returned +0.24% for the month of January, putting YTD returns at +0.24% net. In recent months, the positive US economic outlook has been favorable for risk assets. However, in January macro events such as a skirmish with Iran and the recent coronavirus news has led to more uncertainty in the economic picture.  The 10-year US Treasury yield move lower by 41bps on the month.  With corporate spreads at or near their tights, and yields trending lower, investors are not being compensated to take generic credit or rate risk.  Therefore, we are maintaining a cautious position at this point in the cycle.  Patience has served us well in our 11-year history of managing this Strategy.  In the coming weeks, many economists are likely to revise their growth forecasts downward.

Many companies are likely to negatively revise earnings forecasts. Our hurdle to making investments in credit has increased due to these uncertainties. These events, in our opinion, will lead to market volatility and put pressure on corporate spreads.  This month we maintained 37% of our portfolio in fixed-to-float preferred securities which have performed as expected over the past year with stable income at attractive yields and minimal price volatility. Our high yield exposure remained stable at 12% of the portfolio, mainly in corporate bond and loan closed-end funds, trading at what we see as attractive discounts to NAV.  Our exposure to investment grade corporate bonds increased marginally from 9% to 10% as we added a 1% position in an new issue for ARCC 3.25% ’25. We slightly increased our allocation to municipal CEF’s (now 2% of portfolio) which have cheapened a bit this year relative to US Treasuries. The average credit rating of the portfolio is A-. The duration of our portfolio is 1.44 years, which will continue to insulate the portfolio from expected increased rate volatility in the coming months. The portfolio’s current yield during the month moved up to 4.73%, and the yield to worst is now 3.08%. Due to the high credit quality and low duration of our portfolio, we have been able to collect predictable income while not being impacted by the market volatility seen thus far in 2020. We have tried to accomplish this by selecting credits and industries that should be insulated from cyclical activity. Our allocation to short term US Treasuries and cash now stands at 38% of the portfolio. As our investors know, our core investments are generated from our “bullpen” list of credits which we have researched and monitor real-time. As fixed income markets continue to cheapen, we will keep you abreast of the opportunities as they become apparent.

Interested in more market insights from the Bramshill Team? Download our Q4 2019 Investor Letter here.



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