BRAMSHILL BLOG: From the Desk of Bramshill Investments
The Bramshill Income Performance Strategy produced a total return of -0.51% in November, putting our YTD returns at +2.48%. The month of November was challenging as the credit markets experienced significant volatility. This volatility was caused by concerns in connection with the Fed’s plans to gradually wind down its bond-buying program and anticipation of earlier Fed rate hikes due to inflation concerns.
In the past three months, we have been de-risking the portfolio due to extended valuations in US fixed income. Based on tight valuations in high yield corporates, investment grade corporates and preferred’s, our appetite for risk has been diminished in recent weeks. Additionally, current valuations in these asset classes provide little cushion when equity volatility spikes, as happened in late November. A hawkish Fed will likely lead to more periods of such volatility. Thus, we maintain caution. We continued to modestly reduce our exposure to municipal closed-end funds which now represent approximately 12% of the portfolio. If you recall this position had been as high as 15% of the portfolio earlier this year when it was one of our highest conviction investments. After these funds appreciated 4-6% in total return, we decided to take profits and reduce this exposure. Our exposure to the preferred asset class increased slightly from 33% to 34% of the portfolio as we added positions in the new issue market. This asset class continues to represent the best risk/reward opportunity for total return at this time. Investment grade and high yield corporate bond exposure were both stable at approximately 11% of the portfolio, respectively. Finally, we increased our liquidity in the Strategy by increasing our cash/ST US Treasury allocation to 34% of the portfolio. The current yield on the portfolio is 3.86% while the yield to worst is now 2.71%. The duration on the portfolio is now 2.93 years. We expect to redeploy some of our liquidity position if the new issue calendar prices at attractive concessions based on recent volatility. We will maintain our discipline on seeking value and not chasing prices in the current volatile environment where there is a high probability of loss.
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.