2025 August Portfolio Commentary

As the summer has concluded, we are anticipating a significant rally in duration this fall, and the portfolio is positioned to capitalize. The Bramshill Income Performance Strategy returned +0.36% in August, resulting in a +2.78% YTD total return. 

We made very few changes to the portfolio in August. This was mainly because we are comfortable with our positioning which is more favorable to rate risk and less favorable to credit risk at this time. Fed Chairman Powell’s comments following its Annual Economic Policy Symposium in Jackson Hole affirmed our consistent view this year that the US economy is slowing (as evidenced by reduced job creation) and inflation is in check. These comments led the markets to price in a very high likelihood the Fed will begin rate cuts in September. Additionally, in August the 10-year US treasury yield fell by 16bps. We continue to believe tariffs are a more of a hindrance to growth than a trigger of inflation (aside from short-term shocks), similar to what happened in 2018-2019 when the first round of China tariffs were imposed. We believe the weak August unemployment report is, once again, reflective of a slowing economy. Furthermore, we have seen growing commentary from the Administration and Treasury Secretary about decreasing rates on longer maturity Treasuries. Thus, we have maintained the duration in our portfolio. Our largest asset class allocation remains within investment grade corporate bonds which held steady at 42% of the portfolio. Within our IG book, we have an approximate 10% allocation to junior subordinated utility hybrids, which have fixed coupons that reset to a spread above treasuries at either 5-year or 10-year call dates. We find these structures attractive because they typically deliver more than double the spread of comparable senior debt. We explained this structure in our recently published Bramshill Insights, Opportunities Down the Capital Structure: Elevated Yields in High-Quality Credits (link HERE). In preferreds, we maintained our 19% allocation, predominantly in fixed-reset structures with limited durations of approximately 3 years on average. This is an asset class which we may find more intriguing in the near future as it has lagged other spread sectors. We increased our high yield corporate allocation from 3% to 7% of the Strategy by adding to our position in Macys 5.125% ’42 which trade at approximately 8% yield. We also added to a short duration high yield ETF which widened modestly on spread when front end rates rallied with Fed easing becoming more likely. This allowed us to increase the yield on the Strategy with liquidity in the case there is a risk selloff in the markets. We modestly increased our municipal allocation from approximately 1% to 2% of the Strategy via a closed end fund. Long duration municipals are currently screening moderately cheap in our quantitative models and thus may warrant a further allocation in the weeks ahead. Our long duration treasury exposure remained stable at approximately 20% of the Strategy. We reduced our allocation to cash and short-term treasuries from approximately 14% to 11% as we moderately deployed this liquidity to purchase more high yield corporates.