Market Insights from the Bramshill Investments Team.

2023 June Portfolio Commentary

Posted by Bramshill Investments Team on July 18, 2023

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

Logo BlueThe month of June was a strong month for the Bramshill Income Performance Strategy which returned +0.64%, and has now returned +2.00% YTD.  This performance was in a month where the Bloomberg US Aggregate Index dropped -0.36%, and has returned +2.09% YTD. 

This performance was in a month where the Bloomberg US Aggregate Index dropped -0.36%, and has returned +2.09% YTD. The main reason for the outperformance on the month was the structure of our portfolio.  Currently, we maintain a shorter duration of just 2.4 years while producing a YTW of 6.41% on the portfolio.  We believe this will provide the best risk-adjusted returns over the near term as the U.S. Fed and Global Central Banks have made it clear they will be maintaining higher rates for longer to fight inflation. From our perspective even with a lower Fed Funds rate in 2024 interest rates should remain elevated in the front end providing attractive returns based on income generation more so than price appreciation.  Our preferred allocation remained the largest asset class and remained stable at 28% of the portfolio.  We sold a small position in MS 7.125% PFD which had rallied and was trading negative yield to call. We added marginally to our SCHW 5.375% PFD and C 5% PFD positions. We continued to moderately reduce our exposure in securities we felt outperformed and/or had potential to be dragged down further with repercussions from the regional banking crisis. We will look to add to this exposure in down drafts in structures and credits which we have analyzed and currently sit in our bullpen. Within investment grade corporates, we marginally decreased our exposure from 14% to 13% of the portfolio as we pared positions in AT&T baby bonds.  We are considering various IG names in 1-2 year maturities which look attractive at this time.  Within high yield corporates, our allocation was stable at 7% of the portfolio.  We added to our Macy’s unsecured position and Norwegian Cruise line secured bond as well as one HY CEF (FSD).  We pared our position in other select credits we felt would suffer in a spread widening scenario. Our cautious stance on HY is because spreads in the low 400’s are just fair value, especially in an economic environment where we feel earnings will reset lower, along with a continued slowdown in GDP and economic activity.  We do see some pockets of opportunities in HY starting to develop, either via short term tactical trades via liquid products or longer-term opportunities up the cap structure in select BB’s with strong credit metrics trading in the mid-7% yield area.  Our allocation to municipals was stable at 8.4% of the portfolio as that asset class is susceptible to an increase in long term rates. However, we’ve seen relative value opportunities in closed end funds which trade at double digit discounts to NAV. We’re cautiously considering adding exposure to this asset class as we are more comfortable that longer duration treasury rates are beginning to top out.  Furthermore, these funds often find opportunistic buyers at NAV discounts this extreme, which should provide a floor on pricing and a strong margin of safety behind any future investments. We’ll monitor these developments closely in the next few months and look for relative value opportunities.  Our short-term treasury allocation is currently at 43% and yields approximately 5.3%. We anticipate allocating our liquidity (cash and cash equivalents) into more optimal risk-adjusted investments on a tactical basis. We believe that our active portfolio management methodologies will be important to add to returns and reduce risk.

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