Market Insights from the Bramshill Investments Team.

2021 October Portfolio Commentary

Posted by Bramshill Investments Team on November 16, 2021

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

LogoThe Bramshill Income Performance Strategy produced a total return of -0.16% in October, putting our YTD returns at +3.02%. In a year when most high quality US fixed income benchmarks have posted negative returns, we feel it is risk-appropriate to maintain a defensive portfolio. All liquid US fixed income markets experienced volatility in October.

Considering the 10-year US Treasury yield traded in a +25bps range, our portfolio held up fairly well in the month. For the past year, we have highlighted interest rate risk as the biggest threat to principal loss. Anecdotally, a consistent theme among most corporate borrowers is higher commodity costs and higher wages. While the pundits seem to be focused on the longevity of the word “transient”, we focus on the probability of loss and the compensation investors are receiving for taking duration risk. At this time, investors are receiving little compensation in US fixed income markets for such risk. We have seen such circumstances before (as recently as 2018). Therefore, our investment process guides us to maintain a cautious stance and await better entry points for taking interest rate risk. We have maintained an approximate 3 year duration (currently 2.97years) on the portfolio all year. That is very unlikely to change in the short-term. During the month, we maintained our defensive position of the past few months and made very few asset allocation changes to the portfolio. Additionally, we have been waiting for more favorable entry points for risk. Our largest allocation remains in fixed to reset preferred securities at 33% of the portfolio. These securities have little interest rate sensitivity and attractive yields. We made some small additions in the month to our positions in ALLY 4.70% PFD, SCHW 5.375% PFD, HIG 7.875% PFD and C 4% PFD. We maintained a stable 12% allocation to municipals entirely within the closed-end fund sector. Our investment grade corporate exposure remains at an 11% allocation, mainly in defensive short duration corporate bonds. We reduced our high yield corporate bond exposure from 15% to 11% of the portfolio as we exited a high yield CEF and a high yield ETF position. Hence, the majority of our remaining high yield corporate exposure is allocated to closed end funds which are attractive from both a yield and discount to NAV basis. Our portfolio yield remains attractive at a 3.8% current yield, however we envision a higher current yield in the coming months as we stagger our entry points across existing and new positionings. We are closely monitoring inflation measures and their impact across fixed income markets as the economy is strong and pushes toward full employment status.


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