Market Insights from the Bramshill Investments Team.

2021 July Portfolio Commentary

Posted by Bramshill Investments Team on August 19, 2021

BRAMSHILL BLOG:  From the Desk of Bramshill Investments


The Bramshill Income Performance Strategy performed well in the month of July, with a total return of +0.44% resulting in a +3.24% YTD return. For our Strategy, in recent months we have trimmed risk and maintained a very conservative profile because spreads have performed in most of our asset classes and the probability of loss has increased. This is in stark contrast to one year ago when we were enthused with the entry points for risk and added to our allocations to asset classes with significant potential for spread tightening. In July, US treasury yields were relatively stable. Credit spreads migrated tighter throughout the month across most fixed income asset classes. In the past six months, prices for risk assets continue to rise with limited periods of volatility.

During this past spring period, we maintained our allocations to preferreds, corporate credit, and municipal closed-end funds. Our opinion then and our opinion now is that securities that are spread over treasuries should continue to perform well but the magnitude of potential upside is limited. As we continue to analyze the probability of loss on our portfolio, the team has remained comfortable with current positioning. As a result we have made very few adjustments to our overall portfolio. In July we slightly trimmed our exposure to municipal closed end funds to approximately 13%. These funds are still trading at valuations which are attractive, however they have moved from two standard deviations cheap from their historical averages, to now closer to fair value, both on an absolute and relative basis. We continue to believe there is value in these funds but will be opportunistic to trim exposure as individual securities reach our price targets. We also reduced modestly our exposure to high yield corporate credit from 15% to approximately 14%. Approximately half of this exposure remains in senior secured issues with low LTV’s within well capitalized credits, and approximately half this exposure is in high yield and loan closed end funds which have substantially outperformed the generic high yield market YTD. Our allocation to investment grade corporate credit was stable at 12%, as there is little value in that market at this time. Our largest asset class allocation is in preferred securities which accounts for approximately 33% of the portfolio (most of which are fixed to reset structures with limited duration exposure). This allocation was slightly decreased as ALLY 5.909% PFDs were called. The current yield on the portfolio is 3.82%, and the yield to worst is 2.73%. We have maintained a modest duration of approximately 3.1 years and credit profile of a BBB+ average credit rating. Because of the extended valuations we observe in most of the US credit markets, we have increased our allocation to cash and short-term treasuries to 28% of the portfolio. In addition to our defensive positioning, we are also aware of the many uncertainties that lay ahead such as: Fed tapering of bond purchases, the extent and pervasiveness of the Delta variant of COVID-19 from a health and economic perspective, and the implications of both an infrastructure deal and reconciliation deal in Congress, to name a few. We think it is more important than ever to allocate tactically and to remain highly liquid in our positioning. We envision some volatility in the coming weeks and months as the Fed may signal a pivot and there is more economic uncertainty with regard to the recovery. Liquidity and maintaining investments in higher quality fixed income assets will remain our mantra for the foreseeable future.


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