AdvisorShares Sage Core Reserves 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/HOLD.
October 2018 Portfolio Manager Review
- During the month of October, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 11 basis-points (NAV) vs.18 basis-points on the Bloomberg Barclays US Treasury Bill 1-3 Month Index.
- The Fund paid out income of 17.7 cents per share and had a 30-day SEC yield of 2.15% as of 10/31/2018.
- The Bloomberg Barclays US Corporate 1-3 Year average option adjusted spread (OAS) was 10 basis-point wider on the month, ending at 0.59%.
- Industrials were the best performing corporate subsector, returning 14 basis-points on the month. Some of the better performing positions included the Midcontinent Express 2019's, the Express Scripts 2019's, and Equifax 2021's. The Express Scripts benefited from spread tightening and the Equifax, a floating rate security, benefited from increasing Libor rates. One of the poorer performing positions was the Bayer US Finance 2021's floating rate position, which suffered from spread widening.
- Financials, the second best performing corporate subsector, returned similar performance of 13 basis-points. Among the better performing positions were the Toronto-Dominion Bank 2019’s, American Express 2020’s, and the Sumitomo 2021’s, all of which are floating rate securities which have benefited from rising Libor. One of the poorer performing positions within the sector was the Goldman Sachs 2021’s floating rate position, which also suffered from spread widening.
- Asset-backed Securities returned 13 basis-points during the month. While investor sentiment on the sector is positive, the heavy new issue calendar combined dealers attempting to lighten up their balance sheet going into year end, caused some slight spread widening.
- During the month of October there was $4.240mm in maturities and structured product paydowns. This represents a turnover of nearly 6.50% based on month end fund values.
- Some of the larger purchases during the month included Discover credit card receivables, Ford Floorplan receivables, and CBOE Global Markets Inc.
- The month of October was full of volatility in both the equity and fixed income markets. The equity market dropped nearly 10% during the month, in reaction to the sharp increase in the 10 year Treasury bond rate which jumped 15 basis-points at the beginning of the month.
- Now that the midterm elections are over, the markets are past the uncertainty of the political climate and are now adjusting to the coming reality of a split Congress. This will likely lead to a lot of political gridlock in Washington which may prove to be good for risk assets.
- The Fed is expected to hike rates in their upcoming December meeting and once in early 2019, however further hikes are less certain. While the 2’s/10’s Treasury curve did begin to steepen in September and the first part of October, it has since flattened by 10 basis-points, and currently sits at 25 basis-points. We will keep an eye on how this may affect the Fed’s plans to hike rates in 2019.
Sage Advisory Services
Portfolio Manager of HOLD
Top 10 Holdings
||Portfolio Weight %
|US TREASURY N/B 0.875 4/15/2019
|AMOT 2015-2 A2 1.83 1/15/2021
|COMET 2016-A3 A3 1.34 4/15/2022
|CHAIT 2016-A2 A 1.37 6/15/2021
|FORDF 2016-1 A1 1.76 2/15/2021
|TAOT 2016-D A3 1.23 10/15/2020
|HAROT 2016-4 A3 1.21 12/18/2020
|VZOT 2016-1A A 1.42 1/20/2021
|WELLS FARGO & COMPANY 2.125 4/22/2019
|Yield to Worst
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.
Source: Sage Advisory Services; All data as of 10/31/2018.
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. 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.
- 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.
- A 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 prni cipal) 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.
- A 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.
- A 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.