BRAMSHILL BLOG:  From the Desk of Bramshill Investments

The Bramshill Income Performance Strategy returned +1.51% in May, resulting in a +0.92% YTD total return. For comparison, the Bloomberg Aggregate Index has returned -1.64% YTD. The portfolio benefitted from the additional duration which we added to the portfolio earlier this year.

Our view has been consistent that the overall US economy is slowing in many sectors including consumer spending, employment and loan growth. Thus, we believe restrictive Fed policy will lead to less economic growth and lower inflation readings in the months ahead. While the timing of a Fed rate cut is uncertain, we favor a bit more rate risk over deep credit risk at this time. Corporate spreads are at the tight end of recent ranges and there is a potential for an increase in defaults in the months ahead. With the Fed on hold for the near term, it should be a constructive environment for the Strategy. Our largest asset class allocation remains within investment grade corporate bonds at an approximate 33% allocation. We added a new position in Dominion Energy 6.875% '55 Jr. Sub bonds. This bond is nc5 fixed-to-reset structure, however it comes with a unique feature of a coupon floor which protects the Strategy in the case of falling rates. We are likely to add to this position on weakness. Our preferred allocation was fairly stable at approximately 28% of the Strategy. We reduced our position in CFG 5.65% PFD which had rallied significantly the last few months and was trading around par. We also added to our position in WFC 5.9% PFD which is expected to be called in the coming weeks, and has been trading at an attractive yield, greater than 6.5% to the call. The majority of our preferred positions are in fixed-to-reset structures with limited durations (currently 3.2 year duration on this portion of the portfolio). We reduced our high yield corporate exposure from approximately 13% to 12% of the portfolio as we took down our exposure to HY CEFs. In municipals, we also continued to pare our CEF exposure from approximately 3% of the portfolio to 2% 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 26% of the Strategy, with 12% allocated to long duration treasuries and the balance in short-term treasuries. We slightly increased our long treasury exposure because we believe rates will rally in the weeks and months ahead based on softer economic data. The YTM on the portfolio is 6.72% and the YTW is 6.00%. The portfolio has a A- average credit rating and a duration of 4.8 years at this time. This is an advantageous time for the Strategy when rate volatility is likely to decrease and spreads are likely to be rangebound, which should translate into an attractive total return potential for the Strategy this year.