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HOLD: November 2018 Portfolio Manager Review

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/hold.

Performance

  • During the month of November, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 12 basis-points vs 18 basis-points on the 1-3 month T-bill Index.
  • The fund paid out income of 19.67 cents per share, with a Bloomberg indicated yield of 2.38%.
  • The Bloomberg Barclays US Corporate 1-3 Year Corporate Average OAS was 20 basis-points wider on the month, ending at 0.79%.

Attribution

  • Financials were the best performing corporate subsector, returning 12 basis-points on the month. The best performing position within that sector was the Aflac 2020’s, which were called in full, and returned 1.21%. Some of the other better performing positions were the Aviation Capital 2021’s  floater, and Citigroup 2020’s, which returned 0.60% and 0.33%. The Citigroup position benefited largely from its longer duration and the rally in rates during the month. Some of the poorer performing positions include HSBC 2021’s, and American Express 2020’s, which suffered from spread widening.
  • Industrials were the poorer performing corporate subsector, returning 9 basis-points on the month. The best performing position was the Newell Brands 2019’s, which returned 39 basis-points on the month. The poorer performing positions included Bayer 2021’s and Becton Dickinson 2020’s, which suffered from spread widening.
  • Asset-backed securities were one of the better performing sectors, returning 20 basis-points during November. While the ABS sector was not immune to the spread widening seen in the corporate space, it was not as severe. Performance in that sector was fairly uniform, with no significant outliers to either the upside or the downside.

Portfolio Activity

  • During the month of November, there was $655k in maturities and $1.430mm in structured product paydowns.
  • Some of the larger purchases during the month include Kroger 2019’s, and a US Treasury, also maturing in 2019.

Recent Headlines / Looking Ahead

The month of November was a fairly volatile month for both the fixed income and equity markets. The market is anticipating another rate hike in December, but there is a significant disconnect between what the market and the Fed expect after that. During November, the price of oil dropped 22% and TIPS break-evens dropped 9 basis-points. As we reach what appears to be the end of the economic cycle, we still lack convincing inflation, economic data is slowing down, and yet fed officials are talking as though 4 rate hikes are on the table for 2019. Fed Chairman Powell did acknowledge that we are closer to the neutral rate than previously thought, however he did not speak of any changes in 2019 rate hike expectations. The recent risk-off tone from the market is, no doubt, reflecting some of this tension. We will look for any clarity from the Fed during their December meeting.

Top 10 Holdings

Security Price Portfolio Weight
Government Of The United States Of America 0.875% 15-apr-2019 99.41 4.99%
Government Of The United States Of America 1.625% 31-mar-2019 99.70 2.58%
Chase Issuance Trust 2016-2 1.37% 15-jun-2021 99.14 2.26%
Ally Master Owner Trust Series 2015-2 1.83% 15-jan-2021 99.87 2.07%
Kroger Co. 1.5% 30-sep-2019 98.50 2.06%
Capital One Multi Asset Execution Trust 2016-3a 1.34% 15-apr-2022 99.15 1.99%
Ford Credit Auto Lease Trust 2016-a 1.76% 15-feb-2021 99.75 1.91%
Toyota Auto Receivables 2016-d Owner Trust 1.23% 15-oct-2020 99.18 1.72%
Wells Fargo & Company 2.125% 22-apr-2019 99.66 1.69%
Goldman Sachs Group, Inc. Frn 25-feb-2021 102.25 1.68%

    

Portfolio Characteristics

Yield to Worst

Coupon

Maturity (Years)

Effective Duration

3.260

2.601

1.690

0.410

 

Credit Quality Breakdown

Credit quality ratings are primarily sourced from Moody’s but in the event that Moody’s has not assigned a rating the Fund will use Standard & Poor’s (the “S&P”). If these ratings are in conflict the most conservative rating will be used. If none of the major rating agencies have assigned a rating the Fund will assign a rating of NR (nonrated security). The ratings represent their (Moody’s and S &P) opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The credit ratings are published rankings 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.

Sector Allocation

Source: Sage Advisory Services; All data as of 11/30/2018.

Respectfully,

Sage Advisory Services
AdvisorShares Sage Core Reserves ETF (HOLD) Portfolio Manager

Definitions:

  • The 2/10 Yield Curve measures the difference between the 2-year Treasury and the 10-year Treasury giving an indication of the curve’s steepness. The curve’s flattening or steepening can be used to predict changes in economic output and growth.
  • 30-Day SEC Yield (Standardized Yield) is an annualized yield that is calculated by dividing the investment income earned by the Fund less expenses over the most recent 30-day period by the current maximum offering price.
  • basis point is one hundredth of a percentage point (0.01%).
  • The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. One cannot invest directly in an index.
  • Coupon is the interest rate stated on a bond when it’s issued. The coupon is typically paid semi-annually.
  • Treasury Inflation-Protected Securities (TIPS) are Treasury bonds that are adjusted to eliminate the effects of inflation on interest and principal payments, as measured by the Consumer Price Index (CPI).
  • Credit Spread is the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
  • Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
  • The Fed Funds rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. The rate may vary from depository institution to depository institution and from day to day.
  • Investment Grade is a rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor’s, use different designations consisting of upper- and lower-case letters ‘A’ and ‘B’ to identify a bond’s credit quality rating. For example, ‘AAA’ and ‘AA’ (high credit quality) and ‘A’ and ‘BBB’ (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (‘BB’, ‘B’, ‘CCC’, etc.) are considered low credit quality (speculative), and are commonly referred to as “junk bonds”.
  • London Interbank Offered Rate (LIBOR) is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. The LIBOR is derived from a filtered average of the world’s most creditworthy banks’ interbank deposit rates for larger loans with maturities between overnight and one full year.
  • Mortgage Backed Security is a type of asset-backed security that is secured by a mortgage, or more commonly a collection (“pool”) of sometimes hundreds of mortgages.
  • The Option Adjusted Spread (OAS) is a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Typically, an analyst would use the Treasury securities yield for the risk-free rate. The spread is added to the fixed-income security price to make the risk-free bond price the same as the bond.
  • Spread is the difference between the bid and the ask price of a security or asset.
  • The Subsidized Yield reflects fee waivers and/or expense reimbursements recorded by the Fund during the period. Without waivers and/or reimbursements, yields would be reduced.
  • The Unsubsidized Yield does not adjust for any fee waivers and/ or expense reimbursements in effect. If the Fund does not incur any fee waivers and/or expense reimbursements during the period, the 30-Day Subsidized Yield and 30-Day Unsubsidized Yield will be identical.
  • Yield Curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
  • Yield-To-Worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.

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. Diversification and sector asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund’s investment in fixed income securities will change in value in response to interest rate changes and other factors, such as the perception of the issuer’s creditworthiness. Fixed income securities with longer maturities are subject to greater price shifts as a result of interest rate changes than fixed income securities with shorter maturities. The Fund’s investments in high-yield securities or “junk bonds” are subject to a greater risk of loss of income and principal than higher grade debt securities. In addition the Fund is subject to leveraging risk which tends to exaggerate the effect of any increase or decrease in the value of the portfolio securities. The Fund is also subject to liquidity risk, issuer risk, foreign currency and investment risk, prepayment risk and trading risk. See prospectus for details regarding specific risks.

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 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.