Market Insights from the Bramshill Investments Team.

2024 January Portfolio Commentary

Posted by Bramshill Investments Team on February 08, 2024

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

Logo BlueDuring 4Q23 and the first month of 2024, Bramshill displayed the importance of an active approach to fixed income. Our portfolio performed extremely well in the month of January returning +1.15%, while the Bloomberg US Aggregate Bond Index was negative, returning –0.27%.

The markets have been focused on the timing of cuts to the Fed Funds rate. Many forecasters predicted cuts beginning in March this year and such forecasts led to excessive speculation in the treasury market at year end. We were cautious in deploying capital in December. In our 1Q24 Webinar we expressed our belief inflation is waning, there will be a slowing of the US economy, and the Fed will reduce rates this year. However, we do not invest based on precision forecasting of Fed behavior. Our process tends to identify and allocate to unique structures and differentiated asset class mixes. Because we have always employed a philosophy which measures the probability of loss of our investments as a permanent loss of capital, our strategies have tended to produce lower drawdowns and higher up-capture results. We have been waiting for a better entry point. Between December 27 and January 24, the 10-year Treasury yield increased 40bps.Post this backup, we allocated capital and reduced our cash/ST treasury position from 26% to 12% of the Strategy. We increased our allocation to investment grade corporate bonds from 29% to 34% of the Strategy. This allocation has increased steadily from 16% at end of Q323.In particular, we added to some front end (less than 2y maturities) bonds from issuers such as BAC, JPM,WFC which were yielding approximately 6% at the time of purchase. We also added to our low dollar price, long duration positions (which we have described in previous commentary) across several names such as ORCL, VLO, SPG, BA, LYB, DUK, BIIB. Additionally, post the backup in yields, we deployed approximately 12% of the Strategy into long duration treasuries. Our preferred allocation moved up slightly from approximately 27% to 28% of the Strategy as we added to our position in BAC 6.25% PFD which we still find attractive at 7% yield to a ’24 call, or if not called, it floats at SOFR +397bps. In high yield corporates, we increased our allocation moderately from approximately 9% to 9.5% of the Strategy as we added a new position in ET 8% (Jr. Sub) new issue, reduced some HY CEFs on a rally, and took up our exposure to a short duration, liquid ETF, yielding 7.75% with a 2.5y duration. Finally, in our 1Q24 Webinar, we stated “We think within the next 6 to 12 months there will be credit concerns in the municipal market”. Thus, in January, we reduced our municipal CEF exposure from 9% to 6% of the Strategy. This was opportunistic as these CEFs recently experienced a strong rally with many CEFs up more than 15% from the lows late last year. We believe now is a great time to build high quality fixed income portfolios because yields are compensating investors substantially above inflation. Many of our asset classes have low drawdown probabilities at this time. In this environment, we think our team can capture such higher yields with lower risk than generic fixed income benchmarks or indices.

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