Market Insights from the Bramshill Investments Team.

2022 August Portfolio Commentary

Posted by Bramshill Investments Team on September 20, 2022

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

LogoAugust was a challenging month in both the fixed income and equity markets. This month our portfolio produced a total return of -0.78%, putting our YTD returns at -7.03%. The 10-year US Treasury yield moved +54bps higher on the month. The year-to-date returns in the asset classes in which we invest have been as follows: Bloomberg US Aggregate Index -10.75%; Bloomberg US IG Corporate Index -14.21; Bloomberg US Corporate High Yield Index -11.22%; Bloomberg US Municipal Index -8.62% and the BofA Core Fixed Rate Preferred Index -14.11%.

This year we have consistently highlighted the risk that rising rates would become a disruptive catalyst for all risk assets. Capital preservation and risk management is an over-arching theme within our Firm and within this Strategy. This year because we saw little value in many US fixed income asset classes, we have continued to maintain a large allocation to short-term treasuries and cash as a liquidity buffer while the credit markets have corrected. We have had to consistently resist the temptation to increase either credit or rate risk in the Strategy markedly because both these risks were not being properly priced and momentum has been highly unfavorable. In fact, at this time, we have approximately 44% of the Strategy allocated to short-term treasuries and cash. Fortunately, this liquidity bucket is now producing a yield of approximately 2.5%, as short-term rates have increased markedly this year. In August, we did increase our allocation to investment grade corporate bonds to 18%. This allocation has grown from 13% to its current level since June. We slightly reduced our allocation to preferred securities to 28%. We maintained a stable allocation to municipals and high yield corporates at 5% and 4%, respectively. However, we are excited about the investing environment in which we are entering. In 2021, the spread sectors in which we invest offered “all-in” yields between 2% and 4.5%. Since that time, there has been a substantial repricing. These same fixed income asset classes now offer yields from 4.5% to 8.5%. A key component of our investment process is quantitative analysis which provides historical context (we employ over 25 years of data) to determine whether an asset class is rich or cheap. Most of these asset classes have moved from spread levels which were two standard deviations rich for most of 2021. At this time, we see a number of sectors and subsectors in which we invest 1 to 2 standard deviations cheap in our models. Historically, these valuations have been compelling entry points (which has led to substantial returns) in the past for such sectors of performing US credit. Our consistent investment process which we have employed for the past 13 years has not only allowed us to maintain a conservative profile when investors are not being compensated, but also allowed us to deploy capital opportunistically when the probability of loss on such investments is low. We believe there are many specific opportunities in our bullpen which are compelling at this time. We foresee deploying capital in the coming months which will likely result in a portfolio yield in the 6% - 7% range while maintaining an investment grade average credit rating on the Bramshill Income Performance Strategy.


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