2016 JUNE Portfolio Commentary

BRAMSHILL BLOG:  From the Desk of Art DeGaetano.  

Market Insights from Bramshill Investments: June was characterized by a market environment which was extremely complacent ahead of the Brexit vote on June 23.  The Bramshill Income Performance strategy steadily decreased risk in the portfolio in the days leading up to the vote based on the poor risk-reward dynamics. Although we were surprised by the outcome, our conservative stance served the portfolio well. The strategy returned +0.30% on the month, bringing its YTD performance up to +5.84%. We are extremely sensitive to investors who have been forced into more risky fixed income investments in a search for yield. Income-producing asset and markets have rallied based more on momentum than fundamental value. For this reason, we sold many positions which had reached or exceeded our price targets. In the month, we sold bond positions in ArcelorMittal, Williams, Newmont Mining and Devon Energy. Each of these positions had rallied 15-25% within the past 5 months. As part of our continued focus on credit risk management, we also decreased our exposure to high yield on the month from 29% to 9%. We modestly increased our allocation to preferreds, however mostly in the form of less rate sensitive high-coupon/short callable securities. We decreased our allocation to high yield and long-duration investment grade corporates. As part of our interest rate risk management, we also shortened the duration of our portfolio from 2.8 years to 2.1 years, as we believe the recent rally in rates post-Brexit was the result of a tremendous flight to quality in dollar-based assets. Our concern is a reversal to this condition. In our opinion, Treasuries and municipals have very little value at current prices. We find non-rate sensitive high quality credit as the most attractive sector in which to invest. As specialists in absolute return solutions within fixed income and income producing assets, we will judiciously invest as select opportunities arise.