Market Insights from the Bramshill Investments Team.

2021 March Portfolio Commentary

Posted by Bramshill Investments Team on April 14, 2021

BRAMSHILL BLOG:  From the Desk of Bramshill Investments


The Bramshill Income Performance Strategy produced a strong month in March, with a total net return of +1.19% and YTD net performance of 0.04%. We achieved this return while maintaining a very defensive posture, both in terms of credit risk and rate risk. Interest rate risk has been a major focus for the markets, as 10-year yields are +83bps higher this year and most major benchmarks in US fixed income have posted losses in 1Q21. We have been conservatively positioned this year because we believed the probability of loss was high. This is in stark contrast to most of 2020 when we saw a plethora of attractive investments in our asset classes and invested appropriately. 

Regarding interest rate risk, the Fed has been consistent with its guidance of no rate hikes until 2023. While the selloff in US Treasuries has been driven by impending inflation in connection with a reopening of the economy, we believe such inflation will be temporary in nature. We believe the other major factor fueling the recent selloff has been record treasury supply. The Biden administration has already passed substantial fiscal measures this year with regard to the COVID relief package and a large infrastructure package is forthcoming. “Net issuance of treasury bonds and notes are set to hit an all-time high of $414 billion in March, almost twice the previous record.” * We have stated for many quarters that the markets have not been compensating investors to take significant duration risk. For these reasons, approximately 21% of our portfolio is allocated to short-term treasuries and cash. In terms of credit risk, we believe corporate spreads are at the tight end of recent ranges therefore we are being cautious with regard to investment grade and high yield corporates. We have a modest approximate 15% exposure to high yield at this time which was a slight increase from last month as we added to our ET floating rate note position. A portion of this high yield allocation is allocated to loan CEF’s that are attractively priced at this time. Within investment grade corporates, we have an approximate 11% allocation which was stable on the month. Our largest asset class allocation is in preferreds, which accounts for approximately 39% of the portfolio. This allocation increased by 2% in the month as we initiated a new position in a utility preferred issue, EIX 5.375% fixed-reset PFD (similar limited duration structure to most of our preferred allocation). This position resets in 5 years, if not called, at 5YR UST+470. One other sector note, we like the fact that most of financial preferred issuers have seen large rallies in their equities (in many cases over 20% YTD), and these issuers will largely benefit from a steeper Treasury curve. In municipals, we maintained a 13% allocation to municipal CEF’s. The current yield of the portfolio is 4.69%, while the YTW is 3.37%. The duration of the portfolio is 3.2 years and the average credit rating is BBB+. We are considering certain positions in fixed coupon perpetual preferreds and crossover investment grade corporates which are starting to look attractive but we are patiently awaiting more opportune investment points. Meanwhile, floating rate structures with 4%-5% yields continue to remain our core allocation.

* Source: MarketWatch, 2 Mar. 2021

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