2024 September Portfolio Commentary

BRAMSHILL BLOG:  From the Desk of Bramshill Investments

September was a very strong month for the Bramshill Income Performance Strategy, returning +1.27%, and is now up 5.90% YTD. The Strategy benefitted from the additional duration which we added to the portfolio earlier this year.

This year, we have had a consistent economic view that the US economy was experiencing slowing consumer demand and would experience a significant reduction in inflation. This has largely come to fruition. In September, the Federal Reserve reduced rates by 50bps and we believe the Federal Funds rate will be reduced by an additional 50bps over the course of the next few months. While long treasury rates initially rallied, they sold off in the latter part of September and, upon such a selloff, we increased our long treasury allocation from 13% to 15% of the Strategy. Within investment grade corporate bonds, we slightly reduced our allocation from 32% to 31% of the Strategy. Our positions in short duration BAC and NEE bonds matured or were called in the month. We also added a GS 2-year bond which trades at an approximate 4.75% yield to a 1-year call. Approximately half of our IG corporate allocation remains in long duration corporate bonds that were issued during the Covid induced low-rate era and which had sold off 35-40% at the time of the trade. The duration risk of these securities had shortened from issuance significantly because of the low dollar prices and thus, we continue to like the optionality these bonds offer. As interest rates have rallied this year, the duration of these bonds has extended as the market prices have increased. Thus, there is significant convexity in this allocation. In recent weeks, we have also added to our Dominion Energy 6.875% '55 Jr. Sub position. This bond is nc5 fixed-to-reset structure, which has a unique coupon floor which we find attractive. The high yield corporate bond asset class performed well in September as risk assets rallied alongside rates. We maintained our allocation to a short duration high yield ETF position which saw its yield rally from roughly a 7.25% YTM at the end of August to roughly 6.80% at the end of September. We ended the month with an approximate 9% allocation to this asset class. Preferred securities have contributed meaningfully to our performance this year. We reduced our exposure to preferred’s from 26% to 23% of the Strategy. We took profits in ALLY 4.7% PFD and AXP 3.55% PFD both of which had rallied more than 15+ pts from previous lows. C 5% PFD were also called in the month. The Strategy has realized an approximate 8% annualized yield to its short call since our original purchases. Given the current rate environment, many of our fixed to reset structures continue to have a high likelihood of being called (with minimal extension risk) rather than resetting at a spread over treasuries/SOFR. The Strategy’s exposure to the municipal asset class remains at approximately 2%. Our municipal closed end fund positions rallied significantly ahead of the Fed’s rate cut in September in anticipation of the decreased borrowing costs related to lower rates, and after increasing dividends earlier in the year. Many of these CEFs have rallied 20+% in price since November 2023. While discounts to NAV, are at the tight end of YTD ranges, we continue to hold CEFs with the highest liquidity profile. In recent weeks, we have increased our cash and short-term treasury allocation to 21% of the Strategy. We believe the current rate-cutting environment is favorable and we will view any selloffs in rates or credit as an opportunity to deploy capital.