BRAMSHILL BLOG: From the Desk of Bramshill Investments
The Bloomberg Aggregate Index lost -2.53% while the longer duration TLT 20+ Treasury ETF was down -6.45% for the month. While there was a clear trajectory of US inflation waning in late 2023, recent fears of inflation reaccelerating have led to speculation the Fed would maintain a “higher for longer” policy. Our view is that the US economy is slowing in many sectors including consumer spending, employment and loan growth. Thus, we believe restrictive Fed policy will lead to lower inflation readings in the months ahead. Since October 2023, we have positioned the portfolio for spread tightening in asset classes which we believe are undervalued and we have maintained a bit more duration in the portfolio than years past. However, we do not think it will be a ‘one-way train.’ Because of our conviction with regard to our positioning, our exposures in the Income Performance Strategy remained fairly stable in April. Our largest exposure in investment grade corporate bonds was stable at 32% of the portfolio. We added a new position in Cornell University 4.835% '34 (AA rated). During the interest rate backup, as the 30-year treasury moved out to approximately 4.75%, we added to several long duration, low dollar price corporate bond positions such as: ORCL, Biogen, Nasdaq, Micron, Raytheon and Duke Energy. We also took profits in MMM 3.125% ‘46 and sold out of our Boeing exposure early in the month as we anticipated a large amount of new supply in this name (Boeing issued $10bln of debt on April 29th Click for article). In preferred securities, our allocation was unchanged at approximately 28% of the portfolio. Because the preferreds which we have targeted have short call features and high resets at generous spreads (treasuries+450 to +550, or SOFR +400 to 500), our positions have proven resilient even when rates have risen this year, with an average duration of 3.2years for this portion of the portfolio. Our high yield corporate exposure was also stable at approximately 13% of the portfolio. While spreads in the high yield corporate bond market are historically tight, we do not anticipate a spike in defaults and thus the attractive yield in this market warrants an allocation. We remain cautious on adding generic high yield risk, especially at current spreads. In municipals, we pared our CEF exposure from approximately 4.4% of the portfolio to 3% at this time. If Fed policy remains “higher for longer” then CEFs will not perform as well in the months ahead due to higher borrowing costs on their leverage. Our treasury allocation is approximately 23% of the Strategy with 11% allocated to long duration treasuries and the balance in short-term treasuries and cash. We maintained our long treasury exposure because we believe rates will rally in the weeks and months ahead. The YTM on the portfolio is 6.91% and the YTW is 6.31%. The portfolio has a BBB+ average credit rating and a duration of 4.9 years at this time. In April, our turnover in the portfolio was extremely low as some of our positions retraced on very light volumes. As we write this commentary, many of these positions have rallied back on similar light volumes. Although recently markets have been uncertain with regard to inflation and growth, we are very constructive on our positioning and the total return potential for the Strategy this year.
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.