September 2018 Portfolio Manager Review
- During the month of September, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 21 basis-points (NAV) vs.16 basis-points on the Bloomberg Barclays US Treasury Bill 1-3 Month Index.
- The Fund paid out income of 14.4 cents per share.
- The Bloomberg Barclays US Corporate 1-3 Year average option adjusted spread (OAS) was 6 basis-point tighter on the month, ending at 0.49%.
- Financials were the best performing corporate subsector, returning 24 basis-points on the month. All the better performing positions within that category were the longer dated floating rate securities. Among the better performing positions were the American Express 2020’s, the JPM 2021’s, and the BB&T 2020’s, returning 62, 58, and 34 basis-points.
- Industrials, which make up nearly 33% of the portfolio, returned 23 basis-points on the month. The best performing position was the Abbot Laboratories, which returned 88 basis-points due to a full call on the position. Some of the other better performing positions include Midcontinent Express 2019’s, Equifax 2021’s, and Allergan Funding 2020’s, which returned 65, 54, and 46 basis-points. One of the poorer performing positions was the Becton Dickinson 2020’s floating rate position which returned -31 basis-points due to some spread widening.
- Asset-backed securities, which returned 19 basis-points during the month, is a sector that has seen a lot of investor appetite. The recent ABS conference seemed to reaffirm investor confidence in the sector, and secondary spreads held in very well despite the significant new issue after the conference.
- During the month of September the portfolio had 1,065mm in maturities and $1,156m in structured product paydowns.
- The Fund had several creation units during the month, increasing its size to nearly $65mm.
- The month of September began what appears to be a categorical shift in the overall level of interest rates, as both the 2 and 10 year Treasuries were 20 basis-points wider.This was due to a number of issues, including China cutting tariffs. In the wake of the recent trade war rhetoric, this was a surprise.
- While rates did jump in September, the real surprise came at the beginning of October as the Federal Reserve Chairman Jerome Powell indicated that we are still a long way away from the neutral rate, stoking fear of further rate hikes, which in turn caused rates to increase and the curve to steepen. The market currently expects another rate hike in December, and is now giving the March meeting a greater than 50% chance of a hike as well. Thelevel at which rates will find their new normal is yet to be seen, but it seems as though the path of least resistance is higher rates, barring any unforeseen economic or geopolitical pressures.
Sage Advisory Services
Portfolio Manager of HOLD
Top 10 Holdings
|T 0 7/8 04/15/19||99.17||5.02%|
|TAOT 2016-D A3||99.31||2.10%|
|COMET 2016-A3 A3||99.04||2.00%|
|VZOT 2016-1A A||99.53||2.00%|
|CHAIT 2016-A2 A||99.05||1.92%|
|WFC 2 1/8 04/22/19||99.68||1.71%|
|GS 0 02/25/21||103.19||1.71%|
|BAC 2 1/4 04/21/20||98.72||1.50%|
|BK 2.15 02/24/20||98.89||1.44%|
|AGN 0 03/12/20||101.37||1.34%|
|YTW||Coupon||Maturity (Yrs)||Eff Dur|
Source: Sage Advisory Services; As of 9/30/2018
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 as of 09.30.2018||Allocation|
|Mortgage Backed Securities||0.5%|
|Asset Backed Securities||27.9%|