CWS

AdvisorShares Focused Equity ETF

Performance data quoted represents past performance and is no guarantee of future results. Current performance may be lower or higher than the performance data quoted. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than original cost. Returns less than one year are not annualized. For the fund's most recent standardized and month-end performance, please click www.advisorshares.com/fund/cws.

June 2018 Portfolio Manager Review


During the month of June, the stock market was able to shake off another interest rate hike from the Federal Reserve, and climb higher for a nice gain. For the month, the S&P 500 gained 0.48%. Including dividends, the index advanced 0.62% in June.

I’m pleased to say that the AdvisorShares Focused Equity ETF (NYSE Arca: CWS) did even better. For the month of June, shares of CWS gained 3.5% while the fund’s Net Asset Value rose just over 3%.

What’s happened is that there’s been a major shift on Wall Street. During June, riskier stocks started to falter while more stable stocks held up just fine. This is interesting for two reasons. The first is that riskier, more volatile stocks had been leading the market for more than two years. The second is the degree of the shift. The market seems to have swung dramatically in favor of more stable stocks.

On balance, that’s very good news for CWS. Our portfolio is concentrated on a select few high-quality names. As a result, our portfolio tends to be more conservative than the rest of Wall Street.

During June, few of our stocks did poorly. There are a couple of stocks I’d like to high for their exceptional performance. First off is Alliance Data Systems (ADS). ADS got off to a terrible start this year. On January 12, ADS got as high as $278.33, but by May 3, it was down to $193.87. Ouch!

Our strategy, of course, is to hold on. We don’t play the in-and-out game that’s so popular along stock jockeys. I’m happy to say that ADS has recovered a lot of lost ground. The stock closed out June at $233.20 per share. That’s a big gain for just a few weeks. Recently, ADS reiterated its full-year earnings forecast of $22.50 to $23 per share. It’s funny how that news hasn’t had much impact at all. A few weeks ago, no one wanted to hear any good news. ADS will report earnings again in July, and I’m anticipating good numbers.

Another big winner for us in June was Church & Dwight (CHD). I think of CHD as being a classic defensive stock. CHD owns several well-known consumer brands. What I like about CHD is that it’s earnings line is like a straight predictable line. It climbs steadily each year.

For Q1, the consumer-products outfit had earnings of 63 cents per share. That was two cents better than estimates. CHD also reaffirmed full-year guidance of $2.24 to $2.28 per share. The company increased its expected sales growth to 9%. For Q2, it expects earnings of 46 cents per share. The report should be out sometime in late July. Church & Dwight gained 13.2% for us in June.

But our biggest winner in June was RPM International (RPM). The stock gained nearly 18% in June. RPM was in the news on June 28. Bear in mind that RPM is never in the news, so the mere fact that they’re in the news is itself newsworthy.

The company announced that it has reached an agreement with Elliott Management, an activist investor. That’s the new name for corporate raiders. These are guys who take big positions in undervalued companies and then demand that they make changes to boost the share price.

Elliott is run by Paul Singer, and they’re one of the better activist shops. I’ll summarize the agreement. RPM will add two new board members. The board will also form an Operating Improvement Committee.

The OIC will “focus on operational and financial initiatives to create and enhance shareholder value. Certain of these initiatives will center around setting and achieving new company margin targets based on top-performing industry standards and optimization of RPM’s balance sheet, including streamlining working capital and implementing new capital allocation guidelines and capital return plans.”

The idea is that RPM will be more transparent regarding its financial goals. They’ll provide an update for shareholders by November 30. RPM’s CEO said:

“Over the past year, RPM’s Board and management have begun working on initiatives to drive greater efficiency across our operations while maintaining our growth momentum,” said Mr. Sullivan. “We have made some progress in reducing SG&A and identified key opportunities to improve manufacturing efficiencies, lower operating costs, and improve working capital. The initiatives announced today position us to progress significantly on these plans.

RPM owns several well-known niche brands like Rust-Oleum. The stock jumped 9% on news of the agreement. Perhaps that’s due to Singer’s reputation. This is a company that has raised its dividend for the last 44 years in a row, and a lot of investors have never heard of them. RPM’s fiscal Q4 earnings report will come out on July 19.

Portfolio Attribution

Here’s how all 25 positions performed during the month of June:

Company

Symbol

31-May

29-Jun

Gain/Loss

RPM International

RPM

$49.50

$58.32

17.82%

Church & Dwight

CHD

$46.95

$53.16

13.23%

Alliance Data Systems

ADS

$210.82

$233.20

10.62%

Snap-on

SNA

$147.82

$160.72

8.73%

Becton, Dickinson

BDX

$221.59

$239.56

8.11%

Sherwin-Williams

SHW

$379.25

$407.57

7.47%

Ross Stores

ROST

$78.88

$84.75

7.44%

Cognizant Technology

CTSH

$75.35

$78.99

4.83%

Continent Building Pr

CBPX

$30.25

$31.55

4.30%

Intercont Exchange

ICE

$70.89

$73.55

3.75%

Hormel Foods

HRL

$35.89

$37.21

3.68%

Fiserv

FISV

$72.60

$74.09

2.05%

Wabtec

WAB

$97.51

$98.58

1.10%

Check Point Software

CHKP

$97.36

$97.68

0.33%

Signature Bank

SBNY

$127.49

$127.88

0.31%

Cerner

CERN

$59.68

$59.79

0.18%

Moody's

MCO

$170.57

$170.56

-0.01%

JM Smucker

SJM

$107.50

$107.48

-0.02%

Danaher

DHR

$99.28

$98.68

-0.60%

Ingredion

INGR

$111.39

$110.70

-0.62%

FactSet Research Sys

FDS

$201.01

$198.10

-1.45%

Carriage

CSV

$25.15

$24.55

-2.39%

Stryker

SYK

$174.02

$168.86

-2.97%

Torchmark

TMK

$84.83

$81.41

-4.03%

AFLAC

AFL

$45.06

$43.02

-4.53%

Source: Yahoo Finance

Portfolio Changes

The philosophy of the AdvisorShares Focused Equity ETF is to make portfolio changes just once a year. At the end of the year, we add five stocks and delete five. We made our changes in December, so there were no changes to make in June.

Respectfully,

Eddy Elfenbein
AdvisorShares Focused Equity ETF Portfolio Manager

 


May 2018 Commentary

In a first for the ETF industry, the portfolio manager of CWS has “skin in the game.” The manager’s compensation is directly tied to portfolio’s performance. Stronger outperformance is rewarded with a larger management fee while weaker or underperformance is penalized with a smaller management fee. The CWS fulcrum fee was 0.65% during June 2018. After the Fund’s June performance, the CWS fulcrum fee will remain at 0.65% in July 2018.
 

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting www.advisorshares.com. Please read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

There is no guarantee that the Fund will achieve its investment objective. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. Shares of the Fund may trade above or below their net asset value (“NAV”). The trading price of the Fund’s shares may deviate significantly from their NAV during periods of market volatility. There can be no assurance that an active trading market for the Fund’s shares will develop or be maintained. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time. Other Fund risks include market risk, liquidity risk, large cap, mid cap, and small cap risk. Please see prospectus for details regarding risk.

Shares are bought and sold at market price (closing price) not NAV and are not individually redeemed from the Fund. Market price returns are based on the midpoint of the bid/ask spread at 4:00 pm Eastern Time (when NAV is normally determined), and do not represent the return you would receive if you traded at other times. Holdings and allocations are subject to risks and to change. The views in this commentary are those of the portfolio manager and may not reflect his views on the date this material is distributed or anytime thereafter.

The views in this material were those of the Portfolio Manager and may not reflect his views on the date this material is distributed or anytime thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.

Definition:

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. One cannot invest directly in an index.