BRAMSHILL BLOG: From the Desk of Bramshill Investments
The fixed income markets experienced significant volatility in September with the US 10Y Treasury rates rising approximately 20bps. The rate move was propelled by Fed Chairman Powel’s hawkish shift, which not only confirmed that the taper is imminent, but also admitted the Fed had underestimated the transitory nature of inflation, stating it would be more persistent than originally anticipated. Meanwhile, our portfolio produced a total return of -0.37% net on the month, putting our YTD returns at +3.19% net.
Using the Bloomberg Barclays Indexes, during the month of September, the Long U.S. Treasury Index was down -1.00%, the U.S. Aggregate Index was down -0.87%, the U.S. Corporate Index was down -1.05% and the U.S. High Yield Index was down -0.01%. For many months, we have highlighted interest rate risk as a looming threat to principal loss. During the month, we held our defensive posture of the past few months as we maintained a very short duration of 3.13 years in the Strategy. Our largest allocation remains in fixed to reset (off U.S. treasuries) coupon structures in the preferred asset class at 32% of the portfolio. These securities have been performing in line with our thesis of attractive yields with little price volatility. During the month, we made very few asset allocation changes to the rest of portfolio. First, we increased our high yield exposure to approximately 15% of the portfolio by increasing our allocation to short duration high yield corporates. Second, we reduced our allocation to the municipal sector to 12% of the portfolio as we further trimmed our position in municipal CEF’s many of which have approached their NAV’s and have reached fair value in our opinion. We reduced our allocation to investment grade corporates to approximately 11% of our portfolio as our position in GM frn’s was called. Cash and ST Treasuries now represent approximately 31% of the portfolio at this time. We have reduced our exposure to both interest rate risk and credit risk over the past few months. History has shown, volatility such as was experienced in September in the fixed income market, often leads to opportunities for our Strategy. We are in a strong position at this time to deploy our liquidity when such opportunities become more apparent. We are closely monitoring inflation measures as the economy remains resilient and unemployment becomes less of a drag on the economy. We are very conscious of interest rates tailing, as happened during the summer of 2013, which could weigh upon all asset classes. We will likely stagger our entry points for risk in all fixed income over the next couple months.
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.