Market Insights from the Bramshill Investments Team.

2023 November Portfolio Commentary

Posted by Bramshill Investments Team on December 06, 2023

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

Logo BlueThe Bramshill Income Performance Strategy performed very well in November, up +3.99% for the month and now up +5.02% YTD.   The portfolio benefitted significantly from our repositioning of the portfolio in September and October.  

Entering this year we were cautiously awaiting opportunities because we believed the economy was strong and the Fed would aggressively hike rates in 1H23. At that time, we believed caution was appropriate as the opportunity set on most US fixed income was marginal at best due to interest rate risk and thus, we maintained significant liquidity and a very short duration. In September, however, we determined that inflation was waning, the economy was beginning to slow, and the Fed had shifted to a more neutral stance.  Based on these fundamental factors and oversold conditions in the treasury market, we stated in our October Webinar (find the replay on our website's "news" tab) our intention to deploy a significant amount of our liquidity and extend duration. We shifted significant capital into investments from our bullpen.  Since September, we have reduced our cash/ST US Treasury position from approximately 45% to 30% and we extended the duration of the portfolio from approximately 2.2 years to 3.4years.  In particular, we allocated to investment grade corporates, where we have increased our exposure in the past 2 months from approximately 16% to 28% of the Strategy.  Most of this allocation shift in October 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.  In November we added to certain names in this basket such as Boeing, Valero, Biogen, 3M, Oracle, Starbucks, and Raytheon. We also added a new issue from Brookfield Finance 6.35% ‘34 and some short duration IG corpo-rates such as BankAmerica 0.981% ‘25, yielding approximately 6.5%.  Our preferred exposure now stands at approximately 27% of the portfolio.  We will be patient and likely only add to this asset class opportunistically via the new issue market.  Our high yield corporate exposure was stable this month at approximately 6% of the portfolio. We want to maintain discipline in the high yield corporate bond market, as defaults have already increased from approximately 2% to 4.5% this year and further defaults are likely in a slowing economy. In municipals, we maintained an approximate 8.5% position in municipal closed-end funds which experienced a dramatic rally in November.  While we find value in this sector, we will be selective on CEFs which have delevered and are less likely to cut distributions in the future.  The YTM on the portfolio is 6.81%, with a YTW of 6.57%. We have become more constructive on the asset classes in which we invest be-cause interest rate risk is significantly lower than earlier this year. We plan to continue to allocate capital throughout this quarter. This is a good time to build long term fixed income portfolios without having to take significant duration or credit 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