BRAMSHILL BLOG:  From the Desk of Bramshill Investments

The 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.