BRAMSHILL BLOG: From the Desk of Bramshill Investments
May was another extremely volatile month in both interest rate and credit markets. Our conservative positioning protected the portfolio from the extreme selloff in the various markets in which we invest. The YTD returns through May for benchmark fixed income asset classes were as follows: Bloomberg US Aggregate Index (-8.92% YTD); Bloomberg US IG Corporate Index (-11.92% YTD); Bloomberg US High Yield Corporate Index (-8% YTD); BAML Fixed US Preferred Index (-15% YTD); S+P US Preferred Index (-11.34% YTD) and the Bloomberg US Municipal Index (-7.47% YTD).
The Bramshill Income Performance Strategy returned -0.32bps in May and has now returned -6.75% YTD. While the return on the Strategy has outperformed most major US fixed income benchmarks, we are not satisfied with such outperformance. Our mandate is to employ our consistent investment process which we have implemented over the past 13 years and deploy capital judiciously when the probability of loss is low and the likelihood of positive returns is high. While both the US treasury market as well as the US credit markets are going through a major correction, opportunities will become apparent in the coming weeks and months. While the markets were volatile in May, our portfolio remained fairly stable. Risk assets sold off aggressively in the middle of the month and spreads widened to multi-month wides. The Bloomberg HY Index reached a 7.82% YTW and the BAML Preferred Index reached 6.28% YTM (both multi-year highs) before rallying into the end of the month. We did not deploy capital into such spread widening because of our concern about the technical picture as well as summer liquidity issues which make future opportunities more likely. We maintained out cash/short-term treasury position which now constitutes 46% of the Strategy. Our preferred allocation was stable on the month at approximately 29% of the Strategy. Our high yield corporate allocation was stable at approximately 6% of the Strategy. Our investment grade corporate bond allocation ticked down slightly from approximately 15% to 13% of the Strategy as DUK 2.8% and MS 2.75% issues both matured. Municipals were also stable at approximately 5% of the Strategy. While the yields on our overall portfolio are 3.75% YTM and 3.58% YTW, respectively, the yields on invested capital within the portfolio are 6.23% YTM and 5.70% YTW, respectively, at this time. We are beginning to see many attractive securities in the credit markets. Our sizable liquidity buffer is designed to prepare for the major buying opportunity we expect to see in the near future. We are actively cultivating our bullpen with over 75 individual securities which have been underwritten by the Bramshill investment team. We have target prices and yields for inclusion of such securities within the portfolio. While most of these positions have not yet reached our price targets, we are sensing that forced selling from other market players driven by fund flows and liquidity needs will drive such securities to our price targets in the short-term. We see the approaching summer months as being a period of illiquidity and a significant opportunity to deploy portions of our liquid capital base. As we have mentioned in prior commentary, our investment team has stepped into such challenging environments opportunistically in the past (most recently April 2020, December 2018 and January 2016). We are happy to share such case studies as such redeployment has led to outsized returns in the ensuing months. Because we target high credit quality securities under duress, we foresee such an opportunity unfolding during this cycle as well.
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.