Market Insights from the Bramshill Investments Team.

2021 December Portfolio Commentary

Posted by Bramshill Investments Team on January 11, 2022

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

LogoDuring 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.


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