On our last Bramshill Investments quarterly conference call, an investor asked:
Q: Are you getting more alpha from the calls you’re making on a particular asset class versus the credit work that you’re doing on an individual issue?
A: Stephen Selver – We have done attribution analysis, going back on the portfolio over eight years, and we have run it two different ways. Bramshill's Income Performance Strategy will only invest in five asset classes: investment grade and high yield corporate bonds, US Treasury bonds, municipal bonds and preferreds. We have the analysis whereby if you just took a 20% allocation, even-handed across those five asset classes for the past eight years, we’ve run our strategy's returns on a monthly basis against that 20% allocation to each of the asset classes’ portfolio.
What we found, on average, is we produced approximately 200 basis points of alpha above that model portfolio per year. We can share this information with RIAs or investors on an ad hoc basis if they are interested.
Additionally, we have done analysis of our strategy in a different way—we’ve run the portfolio and segregated each asset class exposure going back eight years. We then compared that performance to the corresponding ETF for that sector. For example, we ran the municiple bond portion of our portfolio against the benchmark ETF returns going back again, eight years. That could be a 70% allocation to munis back in 2012, or it could be a 2% or 3% position that we have now. Either way, in the case of municipals, we took the performance against MUB, the municipal bond ETF, over that period. We have the subsector returns of each asset class compared to the corresponding passive sector ETF. On average, we outperformed by approximately about 100 basis points over each respective ETF per year. So, even when we’re in an asset class, we are outperforming that asset class—which we like.
To summarize, we’re generating returns from both asset class selection as well as security selection. We view ourselves as bottoms-up bond pickers, but if you look at the numbers, part of our alpha is generated by the sector rotations as well.
Stephen Selver is the CEO at Bramshill Investments, an asset management firm specializing in absolute return solutions within fixed income and income producing assets. Click here to view his bio and other team members of Bramshill Investments.
Past performance may not be indicative of future results, which may be impacted by unforeseen economic events or evolving market conditions. The indices quoted are included for illustrative purposes only, as an index is not a security in which an investment can me made. Certain statements are forward-looking and may not come to pass.