Market Insights from the Bramshill Investments Team.

2023 December Portfolio Commentary

Posted by Bramshill Investments Team on January 11, 2024

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

Logo BlueThe Bramshill Income Performance Strategy performed very well in December, up +2.65% for the month, and finishing the year up +7.86% YTD. If you recall, we had positioned the portfolio defensively in the first 9 months of 2023. We were cautiously awaiting an opportunity in the credit markets.

However, in October, we were in a position to allocate significant capital as prices in certain long duration corporate bonds had moved substantially lower. In November and December, the portfolio benefitted substantially from this opportunistic rotation out of cash/ST US Treasuries into investment grade corporates where we increased our exposure from approximately 17% to 29% of the Strategy at this time. Most of this allocation was directed into long duration, low dollar price, high quality bonds which were trading between $55 and $65, yielding approximately 6.75%, and had an average spread of +170 to treasuries. The portfolio benefitted substantially from this allocation decision in 4Q23. In December we also added to certain short duration investment grade corporates in the front end of the curve, such as ~2y year BAC, JPM, and WFC, yielding approximately 6% at the time of purchase. In municipal bonds, our allocation now stands at approximately 9% of the Strategy, entirely allocated to municipal CEFs. In 2024, we expect this allocation will benefit from anticipated cuts to the Fed Funds rate. This already began to play out toward the end of the year as many of the funds recovered significantly off their recent lows.   In high yield corporates, we increased our allocation modestly to 9% of the Strategy as we added to a liquid short duration HY ETF, yielding approximately 7.75% with a 2.5 year duration. Our preferred allocation remained stable at approximately 27% of the Strategy as we added slightly to a position in BAC 6.25% PFD which we still find attractive at 7.25% yield to a ’24 call, and if not called this security floats at SOFR +397. Finally, Short Term Treasuries now represents 25% of the Strategy, down from 44% in 3Q23. Although the Federal Reserve has indicated its willingness to remain neutral and potentially cut in 2024, record deficit spending, fiscal expansion and record low unemployment remain as headwinds for interest rates. We believe rates will be rangebound for the foreseeable future. While we extended the duration on our portfolio between 3Q23 and 4Q23 from 2.46 years to 4.05 years, we do not believe one needs to take substantial rate risk to produce a compelling return in fixed income this year. Yields are very attractive from a historical perspective. The yield on our portfolio is 6.57% YTM (6.18% YTW) and we have not sacrificed credit quality (currently average rating of A-). We are optimistic for the prospects of returns on our Strategy this year as we believe the current credit environment is ripe with opportunities. We have now been operating the Income Performance Strategy for the past 15 years. We described above the 8th major allocation shift we have made in that time period. While such opportunities are not always apparent, these shifts have been impactful upon our returns both in terms of providing downside protection and upside participation. At any time, we are happy to share more details regarding our consistent investment process, which incorporates both quantitative and qualitative measures. If interested, please reach out to our sales and marketing team. Additionally, we invite you to participate in our Webinar on January 16th (details in link herein) to learn more about actionable investment ideas we are implementing at this time.

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