Market Insights from the Bramshill Investments Team.

2020 June Portfolio Commentary

Posted by Bramshill Investments Team on July 16, 2020

BRAMSHILL BLOG:  From the Desk of Bramshill Investments


The Bramshill Income Performance Strategy returned +0.48% net in June, contributing to a -2.21% YTD net total return. In 2Q20, the portfolio benefitted from an opportunistic rotation in late March out of cash/ST US Treasuries into fixed rate preferreds, subordinated tranches of IG capital structures, and municipal closed end funds.

In 1Q20, due to the volatility in the markets, our Cash/Short-Term US Treasuries liquidity allocation represented 46% of the portfolio. At the end of 2Q20, post a dramatic shift in our portfolio, our liquidity allocation represents less than 16% of the portfolio. We believe interest rate risk at this time is relatively low because the US economy is in the midst of what will be a prolonged recovery from the COVID-19 pandemic.

The Federal Reserve will be on hold for the near term, as Chairman Powell recently stated: “We’re not even thinking about thinking about raising rates. What we’re thinking about is providing support for the economy.” We believe cur-rent conditions should be constructive for credit spreads. However, not all credits will avoid default. In fact, we have witnessed and will continue to see significant bankruptcies in the US high yield market. Therefore, security selection is paramount in our investment process. Our largest asset class allocation is in preferred securities where spreads are approximately 165bps wider since February 2020. This asset class allocation has gone from 30% of the portfolio in 1Q20 to 40% of the portfolio at 2Q20 (and as of this writing, it is now approximately 44% of the portfolio). We no longer favor fixed to float preferred securities. We are positioned primarily in fixed preferred securities which do not reset for 5 or 10years. Although we have seen US financial institutions report reduced earnings, their balance sheets and credit quality remain robust and the recent Fed liquidity and lending facilities relieves pressure on these institutions. We are confident about the safety of the coupons on these securities. New preferred issuers in nonfinancial sectors such as utilities and energy have also been added to the portfolio. In June, we marginally increased our high yield corporate exposure from 12% to 15% of the portfolio, once again favoring senior secured high yield tranches. We also increased our municipal closed end fund allocation from 5% to 10% of the portfolio as the discounts to NAV and their yields relative to BBB corporates are very attractive at this time. We slightly reduced our investment grade corporate bond exposure from approximately 20% to 19% of the portfolio. The current yield on our portfolio is 5.34%, with a yield-to-worst of 4.39%. The duration of the portfolio is 3.95 years. Overall, we are constructive on risk and we are looking for further opportunities to deploy capital into stable credits with attractive yield characteristics.


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