BRAMSHILL BLOG:  From the Desk of Bramshill Investments

During the last few months of 2021, Bramshill displayed the importance of an active approach to fixed income. Our portfolio performed extremely well returning +1.02% in the month of December, bringing YTD net returns to +3.52%. We achieved this return while maintaining a very defensive posture, both in terms of credit risk and rate risk.

As rate volatility made a notable return in 2021, our peers struggled late in the year in a challenging environment across fixed income. Since August 1, 2021, the 10-year US Treasury yield increased by 33bps from 1.17% to 1.51%. Because our Strategy has an absolute return focus, we tend to avoid drawdowns based on our risk/reward assessments. Hence, the reason for our conservative duration profile at this time. In the coming weeks, the Fed will likely deliver further clarity on the trajectory of its taper and the extent to which they will increase the Fed Funds target rate. The consensus view is 75bps of rate hikes in 2022, including its first 25bp hike at the March meeting. The perceived inflation outlook of the market has increased along with economic activity. We have not taken much interest rate risk this year due to volatility, uncertainty, and because spreads at tight current levels are not garnering sufficient compensation to investors for taking such risk. As distinguished from most fixed income strategies, the Income Performance Strategy’s total return this year has mostly benefitted from positioning in undervalued securities, especially in closed-end funds which were substantial performers. In recent weeks, as the prices of certain names in our portfolio have reached target levels, we have reduced exposure judiciously and moved into short-term US Treasuries and cash (which accounts for approximately 33% of the Strategy at this time). Currently, our portfolio has a duration of 2.94 years, a 3.95% current yield, a yield to worst of 2.75% and a BBB average credit rating. Our allocations were relatively stable in December. Our largest allocation to the preferred asset class increased slightly from approximately 32% to 34%% of the portfolio. We added slightly to SCHW 5.375% PFD as well as two new issues (D 4.35% PFD and VST 7% PFD, both fixed to reset structures) which came in early December during poor market conditions. We also pared one of our more rate sensitive positions in TFC 5.10% PFD. Our investment grade corporate allocation was reduced from approximately 11% to 10% of the portfolio as our position in VLO 2.7% 4/15/23, were called in the month. Our municipal allocation was stable at approximately 12% (all municipal closed end funds) of the portfolio as we had reduced this asset class recently. Our high yield allocation was also stable at approximately 11% of the portfolio at this time. We anticipate allocating capital in 1Q22 upon what we believe will be a repricing of credit and when we expect many items from our bullpen will have reached our price targets.