2016 JULY Portfolio Commentary

BRAMSHILL BLOG:  From the Desk of Art DeGaetano.  

Market Insights from Bramshill Investments:  July was characterized by significant fixed income market volatility.
 For the month of July, the Bramshill Income Performance strategy performed well with a total return of +0.84% bringing YTD performance up to +6.71%. There was significant fixed income volatility intra-month as the 10-year Treasury rate traded in a 24bp range. Credit spreads initially widened early in the month in sympathy with a $10 decline in oil, however, spreads recovered toward the end of the month. Recently, we have positioned our investments conservatively and maintain a defensive stance. Very few portfolio adjust­ments were made over the course of July as we look for more attractive risk/reward entry points for most of the asset classes in which the strategy invests. The duration of our portfolio, approximately 2.1 years, is one of the lowest durations we have had over the 7.5 year history of the strategy. The only new position we added was a single A rated, Entergy Arkansas 4.90% 12/52, first mortgage utility bond with approximately a 4.80% yield, priced slightly above par. This investment was a good replacement for our recent sale of Suffolk County 5% 11/33, municipal debt which we had owned for over two years. We also added to two senior loan closed end fund positions bringing each position up to 5% allocations. We believe non-interest rate sensitive credit represents the best risk/ reward at this time, given where many fixed income asset classes are currently priced. Senior floating rate loans should perform well in a rising rate environment. Meanwhile, if rates remain low or stable, these funds currently distribute 7% annualized coupons, com­pound monthly, and are trading at discounts to NAV in excess of 8%. There are two upcoming events which could materially affect risk assets in the coming months. First, we are mindful of the potential disruptions from a scheduled October Italian financial reform referendum. Second, there could be volatility in connection with the November US Presidential election. In order for us to change our conservative portfolio position, we would need more clarity on these two events or better entry points for risk throughout most fixed income asset classes. Although we may tactically hedge/short, it remains prudent in our opinion to remain in defensive long positions as negative carry from shorts can be painful.

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