BRAMSHILL BLOG: From the Desk of Bramshill Investments
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.
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.