BRAMSHILL BLOG:  From the Desk of Bramshill Investments

In the month of February, our portfolio performed extremely well returning +2.06%, bringing YTD returns to +2.35%. Volatility has been pervasive during the past month as the markets have been adjusting to a series of announcements from the Trump administration.

If you recall, we have chosen to take interest risk over credit risk because of the elevated probability of loss in spread markets such as high yield corporates and preferred securities. In our Webinar from early January (Replay here), we expressed our belief that many of the policies of the new administration would lead to lower growth and inflation. We also stated in our commentary last month, the numerous announcements regarding trade, government efficiency and immigration have been consistent with our view. We have been encouraged that the new administration does seem to exhibit signs of fiscal awareness and restraint, but this has led to a deterioration of consumer confidence and an increase in uncertainty. Additionally, the mixed messages from the administration have increased the dispersion of economic outcomes. Thus, both equity markets and spread markets have been under pressure. At this time, the markets seem to be interpreting that the implications of these policies will weigh on growth expectations and dampen inflation. Since the inauguration, the 10-year US treasury yield has decreased from approximately 4.75% to 4.21% at the end of February. We have maintained the longest duration our portfolio has seen in almost 12 years. As we have mentioned previously, this is not a typical view for us. Currently, our quantitative models indicate credit spreads remain overvalued across most of our asset classes. However, we believe the markets are compensating investors for rate risk over credit risk. Our largest allocation remains within high quality investment grade corporate bonds. We increased this allocation from approximately 38% to 39%. Our position in WFC 2.16% of ‘26 was called. However, we added 3 new issue junior subordinated bonds in the utility sector. We purchased SO 6.375% (30nc10), NEE 6.375% (30nc5), and NEE 6.5% (30nc10). Due to their structures, these issues are likely to be called in 5 years or 10 years, respectively. However, if not called, these issues have reset features which maintain that the minimum coupon floors will never be lower than the current coupons. We like the optionality of these structures. In preferreds, we maintained our allocation at approximately 20% of the portfolio as we like the short duration fixed-reset structures with short spread durations. In high yield, we held our 4% allocation steady on the month. Our municipal allocation remained stable at approximately 2% as we are allocated minimally to two closed end funds at this time. Our cash plus short term treasury allocation decreased slightly from approximately 16% to 15% of the portfolio. Our long-term treasury allocation remains at 21% of the portfolio. We continue to see value in long duration fixed income as we anticipate a reduction of deficits, and inflation migrating towards 2% later this year.