FLRT

AdvisorShares Pacific Asset Enhanced Floating Rate 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 month end performance, please click www.advisorshares.com/fund/flrt.

September 2018 Portfolio Manager Review


FUND PERFORMANCE

In September, The AdvisorShares Pacific Asset Enhanced Floating Rate ETF (NYSE Arca: FLRT) returned 0.69% (NAV), versus the S&P/LSTA U.S. Leveraged Loan 100 Index (“benchmark”) return of 0.67%.

MARKET REVIEW

IIn September the S&P/LSTA U.S. Leveraged Loan 100 Index (which tracks the 100 largest loans in the broader Index) returned 0.67%. The asset class remains favorable given its strong historical performance in rising rate environments, minimal correlation to most other major asset classes, and low duration. Strong fundamentals and technicals remain in place providing further support to the asset class including robust corporate balance sheets, CLO origination, retail demand, and a low default environment. In a reversal from the prior month, loans outperformed both the investment grade bond market and their high yield fixed rate counterparts. The Bloomberg Barclays US Aggregate Index and the Bloomberg Barclays US Corporate High Yield Index returned -0.64% and 0.56%, respectively. However, the loan asset class is outperforming both previously mentioned indices on a year-to-date basis. Monthly credit quality performance was led by lower rated credits with BB-rated credits returning 0.49%, B-rated credits returning 0.74%, and CCC-rated credits returning 1.26%.

The average price of the S&P/LSTA U.S. Leveraged Loan 100 Index increased throughout the month ending at $98.97. According to JP Morgan, institutional gross new loan volume totaled $35 billion (bn) in September, bringing the year-to-date gross issuance to $594bn. This lower monthly volume is likely attributable to reduced re-pricing and refinancing activity. However, net issuance is approximately $238bn (excluding refinancing/re-pricings) year-to-date which is roughly 23% ahead of last year’s pace. CLO issuance activity remains quite robust at nearly $101bn year-to-date. For context, 2017 CLO origination ended 2017 at approximately $115bn. Default activity remains low, with the par-weighted loan default rate ending September at 1.77% (including distressed exchanges increases the par-weighted default rate to 1.82%).

PORTFOLIO REVIEW

The market continues to drive forward on the back of corporate tax reform, healthy underlying credit conditions, and robust corporate earnings while seeking to offset the headwinds of increased volatility, rising rates, and unknown trade and tariff implications. With the further increase in London Interbank Offered Rate (LIBOR) as well as other short-term rates, driven by Fed rate hikes, investors are receiving reasonable yields for holding shorter-maturity high-yield bonds. This is an opportunity we continue to take advantage of. During September, the portfolio increased its benefited from strong performance from both the loan and high yield bond exposure. In particular, the retail sector loan exposure and the construction/machinery sector bond exposures were additive to performance during the month. Balancing risks in the portfolio remains important in looking ahead and we continue to believe flexibility and liquidity are critical at this juncture.

Respectfully,

Bob Boyd,

Managing Director, Pacific Asset Management, Portfolio Manager of FLRT


July 2018 Commentary

 

Top 10 Holdings:

Portfolio Holdings Portfolio Weight (%)
HCA Inc 1.69
Caesars Resort Collection, LLC 1.68
ProAmpac PG Borrower LLC 1.67
Nexeo Solutions LLC 1.66
Uber Technologies, Inc. 1.66
Quikrete Holdings, Inc 1.66
Vistra Operations Company LLC 1.66
Spin Holdco Inc 1.65
ClubCorp Holdings, Inc. 1.64
US Foods, Inc. 1.63

 

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus and summary prospectus which can be obtained by visiting www.advisorshares.com. Please read the prospectus and summary 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. Investing in derivatives may be riskier than other types of investments because they are more sensitive to change in economic or marketing conditions that could result in losses that significantly exceed the Fund’s original investment. The Fund primarily invests in floating rate loans and floating rate debt securities. The market for floating rate loans may be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods. The floating rate feature of loans means that floating rate loans will not generally experience capital appreciation in a declining interest rate environment. Declines in interest rates may also increase prepayments of debt obligations and require the Fund to invest assets at lower yields. Other Fund risks include market risk, leverage risk, foreign investment risk, liquidity risk, income and interest rate risk, liquidity risk, management risk, high yield securities risk, loan participation risk, prepayment risk, and trading risk. Please see the 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 credit ratings referenced in this commentary are published rankings by Moody’s and are based on detailed financial analyses by a credit bureau specifically as it relates the bond issue’s ability to meet debt obligations. The highest rating is AAA, and the lowest is D. Securities with credit ratings of BBB and above are considered investment grade. 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.

Definitions:

A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument.
A collateralized loan obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans.

Downside risk is the likelihood that a security will decline in price, or the amount of loss that could result from that potential decline. Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Leverage is the amount of debt used to finance a firm’s assets.
The S&P/LSTA U.S. Leveraged Loan 100 Index is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments. One cannot invest directly in an index.
The Bloomberg Barclays Capital Aggregate Bond Index measures the performance of the U.S. investment grade bond market. One cannot invest directly in an index.