BRAMSHILL BLOG:  From the Desk of Bramshill Investments

March was a solid month for the Bramshill Income Performance Strategy which returned +0.93% on the month and has now returned +1.46 YTD.  In the past year, the Strategy has returned 8.45% while the Bloomberg US Aggregate Bond Index has returned 1.70%.

The most meaningful driver of returns in 1Q24 has been our allocation to the preferred asset class which has exhibited substantial spread tightening.  This year, we have had an average weighting of approximately 32% to the preferred asset class.  The majority of this allocation has been in short call, fixed-reset structures which have had less volatility than other US fixed income asset classes when yields have risen, and more upside capture when yields have fallen.  The reason for this condition is because most of the preferred structures we own have high “back-end” resets which make them highly likely to be called within the next two years.  Our largest allocation in the Strategy continues to be investment grade corporates, however, in March we reduced this allocation from approximately 36% to 32%.  We took profits in MMM 3.125% ’36 and ORCL 3.60% ’40, both of which had tightened substantially in spread from when we initially purchased these positions in October 2023.  We also replaced JPM 3.22% ’25, which was called (after returning over 6.5% from our initial purchase), and replaced this position with WFC 2.406% ’25.  We increased moderately our allocation to high yield corporates from approximately 11% to 13% of the Strategy, as we increased ex¬posure to a short duration, liquid, high yield ETF with an approximate 7.75% YTW, and 2.5y duration. We also took profits in ET FRN ’66 and certain HY CEFs which had rallied significantly in the past few months. We continued to reduce our positions in municipal CEFs from approximately 5.7% of the Strategy to 4.4% at this time.  Many of these CEFs have rallied 15-20% in price since November.  As the market has pushed out the anticipated date for the first Fed rate cut, CEFs become less attractive because of their “higher for longer” borrowing costs.  YTD our total reduction in CEF exposure in the Strategy has gone from approximately 11% of the Strategy to 5% at this time.  In March, we increased our treasury allocation from 17% to 22% (with approximately 11% of the Strategy in long duration treasuries, and the balance allocated to short term treasuries yielding approximately 5.30% and providing instant liquidity).  The yield-to-worst of the Strategy is now 5.96%, with a yield to maturity of 6.58%, and an average credit rating of BBB+.  This is an environment where coupon and carry are compelling and will likely be substantial drivers of returns.  Overall, we are looking for further opportunities to deploy capital into stable credits with attractive yield characteristics.  We are optimistic for our strategy this year, as we believe the current credit and yield environment is ripe with opportunities.