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.

August 2018 Portfolio Manager Review


Wall Street was in a happy mood during the last days of summer. The stock market jumped to record highs, and I’m pleased to report that the AdvisorShares Focused Equity ETF (NYSE Arca: CWS) did even better.

For August, shares of CWS gained 3.9%, while the Net Asset Value rose by 3.2%. In fact, both the shares and the NAV hit all-time highs in August. By contrast, the S&P 500 gained 3.03% during August, and with dividends, it rose by 3.26%.

So what drove the gains in August? The simple answer is that corporate profit growth continues to look strong. During the beginning of August, we saw the tail end of the second-quarter earnings season, and the trend looks quite promising.

The Federal Reserve also had a meeting in August. Technically, the meeting started on July 31 and wrapped up on August 1. The central bank decided against raising interest rates, although it seems likely that we’ll get a rate increase in September. The important message for investors is that short-term interest rates, in real terms (meaning, adjusted for inflation), are still negative. That’s favorable for stock investors.

Let’s look at some of our big winners from August. Our top performer was Continental Building Products (CBPX). The company had a blow-out earnings report. The wallboard outfit made 59 cents per share, which was 14 cents more than estimates. That’s a huge beat; also, the details of the report were quite good. Net sales were up 15.5%, while EBITDA rose more than 21%. Gross margins improved to 29.4% from 25.5%. It’s not just about price increases; wallboard sales volume rose from 647 million square feet last year to 722 million square feet this year.

Continental doesn’t provide EPS guidance, but they do give expected ranges for some internal budget numbers. They pared back some of those by a little bit in this latest report. During August, shares of CBPX gained nearly 17% for us.

Another big winner during August was FactSet (FDS). Interestingly, FDS didn’t report earnings during August, but their June earnings report was very good. FDS reported fiscal Q3 earnings of $2.18 per share. That beat Wall Street’s estimate by five cents per share. Revenues increased 8.9% to $339.9 million.

FactSet also bumped up its full-year earnings forecast. The old range was $8.35 to $8.55 per share. The new range is $8.37 to $8.62 per share. The CEO said, “We are making progress integrating and cross-selling our acquisitions, resulting in important wins this quarter, particularly within Analytics. We continue to innovate with the launch of the Open:FactSet marketplace and enhancing our risk offering. We believe we have a solid pipeline for the fourth quarter and expect to finish fiscal 2018 in our guidance range.”

A key metric for FactSet is Annual Subscription Value or ASV. For Q3, ASV rose 5.3% to $1.36 billion. At the end of the quarter, FactSet had 4,975 clients. That’s an increase of 80 clients. User count rose by 860 to 89,506. FactSet’s operating margin fell to 31.0% last quarter, compared with 31.9% a year ago. The drop reflects restructuring actions and certain one-time administrative expenses.

For the first nine months of the year, FDS has earned $6.34 per share. The new outlook implies Q4 earnings of $2.03 to $2.28 per share. Wall Street had been expecting $2.19 per share. During August, FDS gained nearly 14% for us.

On August 23, Ross Stores (ROST) reported fiscal Q2 earnings of $1.04 per share. That’s up from 82 cents per share last year. Sales were up 9%, and same-store sales were up 5%. Ross had given us a range for Q2 of 95 to 99 cents per share. I know that was too low. 

Ross gave some financial guidance for the second half of the fiscal year. For Q3 and Q4, the company is aiming for same-store sales growth of 1% to 2%. For Q3, Ross sees EPS between 84 and 88 cents. Wall Street had been expecting 88 cents per share. For Q4, Ross expects between $1.02 and $1.07 per share. That works out to full-year guidance of $4.01 to $4.10 per share. Wall Street had been expecting $4.08 per share.

Ross has bold plans for the future. The company now aims to open 3,000 stores, which is up from the previous goal of 2,500. After the earnings report, Ross dropped sharply, but it eventually turned around, and was even higher than where it was prior to the earnings report. This is why we use our buy-and-hold strategy with CWS. Ross gained nearly 10% for us during August.

With a portfolio of 25 stocks, we’re not always going to have big winners. Carriage Services (CSV) was our big disappointment during August. The funeral-home stock badly missed estimates. Actually, that phrase really doesn’t apply much to Carriage, since only two analysts follow the stock. The average of the two was for 37 cents per share, and Carriage earned just 22 cents per share last quarter.

The company blamed the poor showing on two factors: “broadly lower volumes and average revenue due to a spike in cremation rates in both our Same-Store and Acquisition Funeral Portfolios, and higher interest costs and an increase in outstanding common shares after our recent balance-sheet recapitalization.”

The shares lost close to 9% during August. I should note that the company remains optimistic for the coming quarters. They said they forecast earnings of $1.35 to $1.40 per share for the coming four quarters. 

Portfolio Attribution

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

Company

Symbol

31-July

31-Aug

Gain/Loss

Continent Building Pr

CBPX

$31.90

$37.30

16.93%

FactSet Research Sys

FDS

$201.36

$229.39

13.92%

Ross Stores

ROST

$87.43

$95.78

9.55%

Hormel Foods

HRL

$35.97

$39.15

8.84%

Alliance Data Systems

ADS

$224.88

$238.58

6.09%

Fiserv

FISV

$75.48

$80.07

6.08%

Signature Bank

SBNY

$109.71

$115.74

5.50%

Cerner

CERN

$62.08

$65.11

4.88%

RPM International

RPM

$64.37

$67.50

4.86%

Becton, Dickinson

BDX

$250.37

$261.87

4.59%

Snap-on

SNA

$169.59

$176.78

4.24%

Moody's

MCO

$171.12

$178.02

4.03%

Stryker

SYK

$163.25

$169.43

3.79%

Sherwin-Williams

SHW

$440.73

$455.58

3.37%

Intercont Exchange

ICE

$73.91

$76.23

3.14%

Check Point Software

CHKP

$112.67

$116.19

3.12%

Church & Dwight

CHD

$55.90

$56.58

1.22%

Danaher

DHR

$102.58

$103.54

0.94%

Torchmark

TMK

$88.07

$87.92

-0.17%

Ingredion

INGR

$101.30

$101.70

-0.23%

AFLAC

AFL

$46.54

$46.24

-0.64%

Wabtec

WAB

$110.32

$108.32

-1.81%

Cognizant Technology

CTSH

$81.50

$78.43

-3.77%

JM Smucker

SJM

$111.12

$103.38

-6.97%

Carriage Services

CSV

$24.99

$22.77

-8.88%

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 August.

Respectfully,

Eddy Elfenbein
AdvisorShares Focused Equity ETF Portfolio Manager

 


July 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. Using the trailing 12-month returns of CWS vs. its S&P 500 Index benchmark, stronger outperformance is rewarded with a larger management fee while weaker underperformance is penalized with a smaller management fee. The CWS fulcrum fee was 0.69% during August 2018. After the Fund’s August performance, the CWS fulcrum fee will adjust to 0.77% in September 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.

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