BRAMSHILL BLOG: From the Desk of Bramshill Investments
The Bramshill Income Performance Strategy returned +0.90% net in June, contributing to a +2.79% YTD total return. As we look back upon the first half of 2021, most major US fixed income benchmarks posted negative returns due to their exposure to rising interest rates which was spurred by an economy in the midst of reopening. By maintaining a conservative position with concentrations on sectors and securities with spread tightening potential, our Strategy was able to produce an attractive return with limited risk potential. We have not taken much interest rate exposure this year with a duration of approximately 3 years (currently 3.2 years) on the portfolio all year.
Our rationale for this positioning was the probability of loss for such exposure was high. In 2Q21, long US Treasury rates rallied from earlier in the year. However, we believe the risks of taking rate exposure at this point remain elevated as the Fed is currently buying over 60% of all US Treasury issuance and this factor could abate in the coming months if inflation and growth data remain elevated. In terms of credit exposure, we remain constructive as defaults are likely to remain low for the foreseeable future. Most sectors of the US economy such as restaurants, lodging, leisure and airlines have reopened and will add to GDP levels in the coming quarters. Liquidity also remains high in the credit markets and this will allow more issuers to remain solvent. However, the overall credit markets are not cheap at this time. Therefore, we have been and will continue to be very selective with the holdings in our portfolio. In terms of positioning, we modestly decreased our exposure to the preferred asset class (now approximately 34% of our portfolio) as our position in ARES 7% Pfd’s was called and we continued to take profits in MPLX 6.875% Pfd’s which have rallied significantly this year with the energy/MLP rally YTD. Strong credit fundamentals with limited durations in our fixed to reset preferred positions remain attractive. However, we remain mindful of the rate risk of this sector and will only add duration upon a significant widening in perpetual preferred’s. Our high yield exposure remained steady at approximately 15% of our portfolio, with the majority of such exposure in closed-end high yield and floating-rate loan funds with attractive yields and large discounts to NAV. We maintained our municipal exposure at approximately 13% of the portfolio entirely within closed-end funds which have been solid performers in the portfolio this year. Within investment grade corporates, we now have approximately 12% allocated to this asset class as we initiated a position in FSK 2.625% five year bond, which is KKR’s BDC. This corporate bond was issued with a large new issue concession. We would add to this position upon a spread widening. The current yield on our portfolio is 3.89%, with a yield-to-worst of 2.86%. The average credit rating on the portfolio is BBB+ at this time. Short-term US Treasuries and cash now make up approximately 27% of our portfolio. This position will allow us to selectively add more attractive positions in the weeks ahead. We are mindful of the many risks to both the credit and rate markets and believe a conservative portfolio is warranted at this time.
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.