BRAMSHILL BLOG:  From the Desk of Bramshill Investments

Bramshill Income Performance Strategy performed well in the month of November returning +1.14% and has now returned +5.39% YTD. The Strategy has outperformed the Bloomberg US Aggregate Index by 246 bps YTD.

As we mentioned in previous commentary, we “increased our cash and short-term treasury allocation…..due to our opinion that spreads were not compensating investors for potential volatility heading into a US election with a binary outcome.” Initially, post election, US interest rates rose quickly due to the market’s speculation that a Trump administration would promote higher growth, lower taxation and higher tariffs which would be inflationary. However, our investment team believes it is equally likely that certain actionable items which will likely take place early in a Trump administration are deflationary. Fiscal restraint as Treasury Secretary Scott Bessent looks to reign in the deficit: deflationary. Consider a peaceful resolution to the Russia-Ukraine war: deflationary. Consider the impact of promoting more US energy production, i.e. “drill baby drill”: deflationary. Consider the impact on global trade if significant tariffs are imposed; while there is significant debate on this topic, the last time Trump tariffs were imposed in 2019, yields in the US fell significantly due to a perceived economic slowdown. Thus, our investment team has not altered the duration of our portfolio which now stands at approximately 5.5 years. Our confidence in the trajectory of rates also is emboldened by Fed policy which continues to show a bias to rate cuts until the Fed reaches a more neutral stance. We believe at least one more 25bp reduction in the Federal Funds rate is highly likely in the near term. During November, we slightly increased our largest allocation to investment grade corporate bonds from approximately 32% to 33% of the portfolio as we added moderately to select credits in low dollar price, longer duration investment grade corporates which sold off post election. We also closed our position in BNCN 6.35% ’34 which had rallied 90bps in spread since our purchases early this year. We maintained our approximate 23% allocation to preferred securities. Predominantly, our preferred positions remain in $1000 par securities which are callable with onerous step-up features. We are avoiding spread duration in this sector due to extremely tight spreads in long duration preferreds. In high yield corporates, we maintained a stable allocation of approximately 7% as we added in small size to our position in ET 8% junior subordinated bonds. We are cautious on the risk markets including high yield corporates which are now trading at all-time tights in spread in both absolute terms and relative to investment grade corporates. There was no change to our municipal CEF exposure which remained at approximately 2% of the portfolio. However, we are looking more closely at this asset class for opportunities because if the Fed cuts rates further, CEFs may be an opportunistic segment in which to add risk due to the anticipated lower borrowing cost on the leverage of such funds. Our treasury allocation decreased to approximately 35% of the Strategy, with 16% allocated to long duration treasuries and the balance in short-term treasuries. Our 19% cash plus ST treasuries serves as dry powder for our bullpen if and when we see better entry points for spread product.