BRAMSHILL BLOG: From the Desk of Bramshill Investments
The first quarter of 2023 has required us to maintain discipline and employ our consistent investment process which we have implemented over the past 14 years. In January, there was a meaningful rally in both rates and credit. In February, much of the rally in both markets reversed course. In March, the most meaningful driver of returns was within the financial sector which was impacted by events around certain mismanaged financial institutions. As a firm, and more specifically within the Income Performance Strategy, we had no direct exposure in any of our portfolios to any securities issued by Silicon Valley Bank, Signature Bank, First Republic Bank, or Credit Suisse. While our total preferred allocation within the Strategy, has been and remains approximately 30% of the Strategy, our exposure to financial preferred securities totals less than 20% of the Strategy. Less than 10% (half) of that exposure is diversified across certain regional banks, finance companies, insurance companies, broker dealers and wealth manager credits. While there may be further volatility in this space, we spent significant time and effort in March re-underwriting such investments. We are confident in our analysis, and we believe that our investments are sound both in terms of liquidity and credit metrics. We did not reduce any of this allocation in March. In fact, we began to add to certain money center banks (such as Citigroup) opportunistically which will be the beneficiaries of the deposit flows which have been in the recent headlines. One other asset class in which we added to our allocation (currently approximately 8% allocation) was municipal CEFs, which are currently trading in excess of 12% discounts to NAV, and which should benefit from a potential Fed pause and the recent treasury curve bullish steepening. Our high yield corporate and investment grade corporate exposures remained stable at 8% and 17%, respectively. Regarding the recent treasury market rally, we believe this was largely a result of strains on the financial sector. As such matters settle, it is likely that long duration treasury yields migrate higher. Thus we believe there is much better value in a short duration portfolio at this time. The duration on our portfolio is now 2.56 years with a YTM of 6.38% and YTW 6.31%. We are highly opportunistic in nature and currently have approximately 37% of the Strategy allocated to short term treasuries (yielding 4.61%) which we expect to re-invest during times of dislocation and volatility. You should expect us to allocate portions of this liquidity in the coming months as we have in past disruptive periods. Feel free to schedule a call with us if you would like to dive deeper into our positioning and thoughts.
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.