BRAMSHILL BLOG: From the Desk of Bramshill Investments
Although the fixed income markets experienced significant volatility in January, the Bramshill income Performance Strategy held up relative-ly well with a total return of -0.28% net on the month. In recent weeks, the market has focused on interest rate risk as a threat to principal loss.
During the month, we maintained our defensive posture of the past few months as we maintained a short duration. Using the Bloomberg Barclays Indexes, during the month of January, the U.S. Treasury Index was down -0.96%, the U.S. Aggregate Index was down -0.72%, the U.S. Corporate Index was down -1.28% and the U.S. Preferred Index was down -0.91%. Investment grade debt with maturities of 10 years and longer lost over approximately 3% on the month. Our largest allocation remains at 40% in preferred structures which have 4-5 year durations and reset off treasuries (primarily off the 5-year U.S. Treasury) not LIBOR or SOFR. These securities have been performing in line with our thesis of attractive yields with less price volatility. One note, our position in BAC 6.20% PFD was called and we replaced that exposure via a new issue, WFC 3.90% PFD. Regarding the US high yield corporate asset class, more than 70% of the issues in this market are trading at or above the call prices creating a negatively convex risk-reward setup. For this reason, and because yields are at historical tights, we see little value generically in this asset class. We have maintained only a 16% allocation to this sector, primarily within senior secured issues which still offer attractive yields with substantial asset coverage. Most of these issues have high coupons and short calls with very limited durations. In the investment grade corporate sector, we reduced our exposure to 11% at this time as we sold a small portion PPL frn bonds. Our municipal exposure was also stable at 14% of the portfolio. As we have described in prior months, this allocation is entirely within municipal closed end funds trading at substantial discounts to NAV and with yields which are very attractive relative to long duration IG corporate bonds and cash municipals which are trading at historical lows in yield. These funds on average have AA/A rated portfolios. This is one sector in which we expect principal gains in the months ahead. We are closely monitoring inflation measures as the economy recovers and we are conscious of interest rates tailing which could weigh upon all asset classes. We will likely stagger our entry points for risk across our asset classes over the next couple months as we see 10-year U.S. Treasury yields remaining in a 0.90% – 1.25% range.
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.