July 2018 Portfolio Manager Review
For the month of July, the AdvisorShares New Tech and Media ETF (FNG) was down -1.22% compared to gains of 3.72% in the S&P 500 and 2.79% in the Nasdaq Composite Index.
July was an incredibly volatile month for both FNG and the overall markets – being the start of an earnings season and the rising of geo-political rhetoric on tariffs and Asia. Among core holdings, Amazon (NASDAQ: AMZN) was up 4.56%, Alphabet (NASDAQ: GOOG) gained 9.10%, Square Inc (NYSE: SQ) was up 4.88%, and Netflix (NASDAQ: NFLX) was off -13.79%. Overall the biggest gainers for the Fund were Appfolio (NASDAQ: APPF) at 18.07%, GOOG at 9.10%, Microsoft (NASDAQ: MSFT) 7.57% and Iridum Communications (NASDAQ: IRDM) at 7.45%. The biggest losers were two shining stars from the previous month with NFLX down -13.79% and Trade Desk (NASDAQ: TTD) losing 10.1%.
As stated previously, July was an extremely volatile month for the general markets as well as FNG, with the fund itself seeing a 6% percent intra-month swing from high to low. The story of the month was earnings, earnings and earnings, with the “FANG” names being the market movers, and what a mixed bag it was. NFLX missed on subscriber growth and saw a double digit drop taking the market with it; followed by GOOG with an excellent report and moderate gains; AMZN had great earnings but lowered guidance and saw mixed results; while Facebook (NASDAQ: FB) and Twitter Inc (NASDAQ: TWTR) both had huge misses and poor guidance to absolutely destroy the NASDAQ and take the High Tech space down with them. It’s interesting to note that we’ve seen this kind of behavior during the last few earnings periods. In November we saw gains going into earnings and a sell off of technology. In late January/early February we saw the same action. April showed a similar pattern and then July was blistering post earnings with a number of companies selling off on “beats” and other companies getting absolutely punished for misses and/or poor guidance. The last three quarters saw rebounds in the months following the earnings announcement and we see no reason to expect that to change this time. To that point, a number of positions were sold off in whole or part during the month to exit July with about 30% in cash, which was mostly reinvested on August 1 into a smaller, but more concentrated, basket for FNG. It is the belief of FNG's Investment Committee that the stocks chosen to form the concentrated portfolio have much stronger fundamentals than the current price represented, and that while most issues were weak technically after the post earnings sell off and NASDAQ moving into correction territory, the stocks in the July 31 to August 1 rebalance proved too good to pass up at their current price points.
Questions did arise through mass media articles pointing out that FNG has not held Facebook since the Cambridge Analytica event, and asking why a “FANG” fund didn’t hold a “FANG” stock. As previously stated, Sabretooth Advisors views “FANG” as an idea and not a specific group of four stocks. At the turn of the 20th century it was railroad stocks, in the 1920’s it was Radio stocks, the 1990’s was Internet and dot.com stocks. Companies that had innovative technology and were changing the way people would lead their lives.
Scott Freeze, chief investment officer of
Sabretooth Advisors, portfolio manager of FNG
Top Ten Holdings
|Ticker||Company||Portfolio Weight %|
|ADBE||Adobe Systems Inc||4.85%|
|NEWR||New Relic Inc||4.79%|
|PANW||Palo Alto Networks Inc||4.24%|