BRAMSHILL BLOG:  From the Desk of Bramshill Investments

The Bramshill Income Performance Strategy produced a total return of -1.15% in September, putting our YTD return at +1.18%. All liquid markets experienced signif-icant volatility in September due to many conflicting headlines regarding the stimulus package and the US presidential election.

Since March, we have positioned the portfolio for spread tightening in sectors which we believe are undervalued. However, we mentioned in our April commentary that “we do not think it will be a ‘one-way train.’ " Because of our conviction with regard to our positioning, our exposures in the Income Performance Strategy remained fairly stable in September. Our largest exposure in preferred securities was unchanged at approximately 44% of the portfolio. We favor 5-year and 10-year non-call, fixed to reset preferred securities. These preferreds reset at generous spreads (Treasuries+450 to +550, not LIBOR), which in all likelihood, will be higher upon such reset dates. Our investment grade corporate exposure was stable at approximately 15% of the portfolio. Our high yield corporate exposure (most of which is in senior secured tranches of high yield capital structures) was also stable at approximately 18% of the portfolio. The high yield corporate bond market continued to experience significant defaults as the LTM default rate for US High Yield hit 6.8% last month.* Therefore, we remain cautious on adding generic high yield risk, especially at current spreads. We continue to believe it is more attractive to allocate most of the portfolio to subordinated tranches of investment grade names (such as preferred’s) which have demonstrated access to the capital markets, and are in attractive industries less exposed to the repercussions of COVID-19. In municipals, we maintained an approximate 14% position in municipal closed-end funds which remain priced at attractive yields, especially when compared to long duration investment grade corporate bonds. The current yield on the portfolio is 5.56% and the yield-to-worst is 4.50%. The portfolio has a BBB average credit rating and a duration of 3.8 years at this time. In Septem-ber, our turnover in the portfolio was extremely low as some of our positions retraced on very light volumes. As we write this commentary, many of these positions have rallied back on similar light volumes. Although recently markets have been uncertain with regard to the US presidential election and its implications, we are very constructive on our positioning given the simple fact that the Federal Reserve is buying investment grade and crossover credit.