BRAMSHILL BLOG:  From the Desk of Bramshill Investments

The portfolio returned 0.29% for the month of January. As we mentioned in our Webinar from a few weeks ago, we think the Fed will become less relevant early in the year and we think they are awaiting more clarity on the incoming Trump administration’s policies.

While the Fed could cut two or three times later this year, we align more closely with the outlook indicated by the futures market which has them on hold in the near term. During the first few weeks of the new administration, there have been numerous announcements regarding trade, government efficiency and immigration. The implications of these policies on growth and inflation at this juncture are at best unclear. However, we are encouraged that the new administration does seem to exhibit signs of fiscal awareness and restraint. In January, we made very few changes to our portfolio. We maintain the longest duration in our portfolio that we have had in over a decade. 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. For this reason, we maintain a 20% position in long duration treasuries. Our largest allocation is within high quality investment grade corporate bonds. We increased this allocation from approximately 36% to 38% as we added to BAC 5.08% ’27 and some small positions in certain liquid short duration investment grade ETFs. We also added to D 7% ‘54 junior subs which sold off with rates mid month. In preferreds, we decreased our allocation from approximately 24% to 20% of the portfolio as we took profits in SCHW 5.375% which had limited upside and sold some LNC 9.25% which was a bit stretched in terms of valuation. Our preferred allocation remains primarily in $1000 par fixed-reset structures with limited spread duration. In high yield, we decreased our position from approximately 8% to 4% as NCLH 8.375% ‘28 was called at the first call date as expected, and we monetized our holdings in POST 6.25% ‘34 which had tightened in spread during the rate rise. 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 increased from approximately 11% to 16% of the portfolio. We see value in long duration fixed income as we anticipate a reduction of deficits, and inflation migrating towards 2% this year.