BRAMSHILL BLOG:  From the Desk of Bramshill Investments

The portfolio returned -1.09% for the month of March, putting YTD returns at -4.92%. Returns for US fixed income were extremely challenged in 1Q22. In the worst quarter since 1980, the Bloomberg US Aggregate Index returned -5.93% and the Bloomberg US Municipal Bond Index returned -6.23%. The Bloomberg US Corporate Index returned -7.69% on the quarter, which was the poorest quarterly return since 2008.

Interest rates continued their sharp rise in March with the 10 year US Treasury yield climbing 46bps on the month. Based on the current environment and in an effort to protect capital, we reduced risk in the portfolio in March. During brief bounces in CEFs in the month, we used these periods to lighten our exposure. We cut our allocation to high yield corporate bonds and levered loans from 9% to 6% on the month. Spreads actually tightened in March in this asset class and we reduced our exposure into such strength within our HY CEF allocation. Although we were beginning to populate our bullpen with many BB individual securities, they did not widen enough in spread to be within our target zone and we felt it prudent to manage risk in this sector. In the municipal bond asset class, we reduced our exposure from approximately 10% to 5% of the portfolio. While we feel several municipal CEFs display value, the overall technical picture is poor, and thus will present opportunities to buy these securities back at lower levels. Outflows may continue to weigh on returns in this asset class which has heightened our caution. Within investment grade corporates, we are finding value in short duration bonds where we increased our allocation from approximately 14% to 15% of the portfolio. There are many 2yr IG corporate bonds yielding 3-3.5% and we are adding to these positions. Within preferred securities, we maintained our approximate 30% exposure to this asset class. We continue to believe these positions represent good value at current levels. In a white paper which we published this month (The Case for Preferred Securities in a Rising Rate Environment Case Environment), we highlighted the value of fixed-reset preferred structures which maintain their short duration in a rising rate environment, as they have very high resets off US Treasuries at their call dates (3-5years). Within treasuries, as we mentioned last month, we monetized our treasury short position in mid-February and briefly established a 6.5% position in long duration treasuries just prior to the Russian invasion into Ukraine. We felt this geopolitical event could cause a flight to safety bid. After treasuries rallied on the initial invasion, we closed out of this long position in early March. Our technical momentum models coupled with inflationary fears overwhelming flight to safety concerns, gave us the indication that rates were set to rise again. This reduced our portfolio duration from approximately 4.15 years to 2.18 years. At this time, short-term U.S. Treasury bonds represent approximately 40% of our portfolio. The benefit of market expectations of aggressive Fed tightening is that this allocation now yields 1-2%. This is a temporary liquidity allocation which when combined with cash totals 44% of the portfolio and will allow us to capitalize on all of the displacement across our asset classes in the coming weeks and months.