HDGE

AdvisorShares Ranger Equity Bear 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/hdge.

June 2018 Portfolio Manager Review


For the month of June, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) returned -4.27% (NAV) while the S&P 500 returned 0.62%.

One of Ned Davis Research’s (NDR) most-watched models, its “Big Mo Multi-Cap Tape Composite Model” (shown below) is indicating trouble for the market’s direction.  The model was created to give a composite reading on the technical health of the broad equity market. The indicator, plotted in the lower clip of the chart, aggregates the signals of over 100 component indicators. The chart’s top clip plots the S&P 500’s weekly closes.  The model uses trend and momentum indicators based on a broad array of our NDR Multi-Cap cap-weighted sub-industry group price indices.

The current reading below the threshold of 53% has been a warning sign associated with negative returns in the market.  During the period charted, when the indicator has ranged below the threshold, the market has fallen, on average, 18% over the subsequent year.

Within the broad market, investors have focused on certain categories of companies and stocks.  Some of these preferences point to continued investor speculative fervor.  One such chart demonstrates that investors have bid up the stocks of unprofitable companies since December.  The performance of unprofitable companies, relative to the broader market (here, Two Rivers Analytics’ stock universe) shows this effect.

A similar chart shows the outperformance of momentum stocks since at least mid-2017, with very few pauses.  June’s momentum performance was more muted.  It could be that this period of relative gains for momentum is ending.

Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended.  Stocks chosen were based on Two Rivers Analytics' universe of stocks.  © Copyright 2018.  All Rights Reserved Two Rivers Analytics.  Further Distribution Prohibited without prior permission.

For the month of June 2018, the largest realized and unrealized gains were Yirendai Ltd. Sponsored ADR (YRD), GCP Applied Technologies, Inc. (GCP), Owens-Illinois, Inc. (OI) and Triumph Group, Inc. (TGI).

Yirendai stock fell  -9.55% last month. Yirendai is the lending club of China. Seventy-five percent (75%) of their business is in deep subprime. We expect that their write-offs on their lending book will rise sharply and higher than anticipated.

GCP Applied Technologies stock fell sharply over the month, finishing down -8.53%.  GCP’s inventory remains elevated relative to sales expectations. In addition, the company has generated significant EBIT growth through the reduction in expenses.  We view the level of expense reductions to be unsustainable in future quarters.

Owens-Illinois sank  -9.62% in June.  Owens-Illinoi’s DSOs remain elevated, which increases the risk of aggressive revenue recognition. Cash flow performance has been weak and below expectations. Profit margins remain under pressure.

Triumph Group shares fell  -7.55%. Recent corporate guidance fell well below expectations. We have had long-term concerns over their liquidity and cash flow generation abilities. These concerns persist, and earnings quality has continued to be low.

The largest realized and unrealized losses for June were Actuant Corporation Class A (ATU), Omnicell, Inc. (OMCL) and B&G Foods, Inc. (BGS)

Actuant Corporation stock spiked  25.70% in June.  We were concerned about free cash flow growth and elevated receivables. However, the company recently reported a positive quarterly report, boosting the stock and leading us to scale back the position.

Omnicel stock rose  12.67%.  Their deferred revenue trends have weakened while DSO remains elevated. Put together, it leads us to question their forward sales expectations. In addition, inventory levels remain elevated and pose significant risks to margins in the coming quarters.

B&G Foods stock rose  6.22% in June.   Weak organic sales growth and possible extension of payment terms increases the risk of revenue shortfalls in coming quarters. Finished goods inventory has increased year-over-year as well.

Respectfully,

 

Brad Lamensdorf,

Co-Portfolio Manager of HDGE

 


May 2018 Commentary

 

Top 10 Holdings

Ticker Company Name Portfolio Weight %
K KELLOGG CO -3.66%
AJRD AEROJET ROCKETDYNE HOLDINGS -3.64%
SKT TANGER FACTORY OUTLET CENTER -3.52%
OSK OSHKOSH CORP -3.42%
NTCT NETSCOUT SYSTEMS INC -3.37%
HOG HARLEY-DAVIDSON INC -3.31%
GCP GCP APPLIED TECHNOLOGIES -3.25%
SXT SENSIENT TECHNOLOGIES CORP -3.21%
KN KNOWLES CORP -3.21%
XRAY DENTSPLY SIRONA INC -3.15%
Holdings subject to change.

 

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. The Fund may invest in (or short) ETFs, ETNs and ETPs. In addition to the risks associated with such vehicles, investments, or reference assets in the case of ETNs, lack of liquidity can result in its value being more volatile than the underlying portfolio investment. Other Fund risks include market risk, equity risk, short sales and leverage risk, large cap risk, early closing risk, liquidity risk and trading risk. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. See prospectus for specific risks and details.

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. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.

Definitions:

The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

A Bear Market (Bearish) is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

A Bull Market (Bullish) is a financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

A short position is the sale of a borrowed investment with the expectation that it will decline in value.