June 2018 Portfolio Manager Review
The AdvisorShares Wilshire Buyback ETF (NYSE Arca: TTFS) seeks to generate long-term returns in excess of the total return of the Wilshire US Large-Cap IndexSM. The Fund seeks to achieve this objective by investing in stocks that are currently reducing the amount of floated shares through share buybacks while meeting specific debt and free cash flow criteria. For the month of June 2018, TTFS returned 0.35%, falling short of the benchmark Wilshire US Large-Cap IndexSM, which returned 0.62%. In June, we saw the continued underperformance of value vs. growth stocks, as the Wilshire US Large Cap Value Index returned 0.46%, while the Wilshire US Large Cap Growth Index returned 0.80%, which continues to weigh on the performance of the Fund relative to the broad index.
During the month of June, the Fund underperformed primarily due to security selection in Consumer Staples and Financials. Within the Consumer Staples sector, exposure to Walgreens Boots Alliance Inc. (WBA) was the largest contributor to underperformance, as the stock tumbled on competitive fears due to news that Amazon Inc. is acquiring online pharmacy company, PillPack. Exposure to Conagra Brands Inc. (CAG) also hurt performance as the stock fell on news of its intent to buy Pinnacle Foods. The Fund’s overweight allocation to Financials has continued to plague performance, as this sector continues to lag the broader equity market. Broad based security selection in diversified financials also hurt results with companies such as Voya Financial (VOYA), Fifth Third (FITB), Discover Financial (DFS), and Synchrony Financial (SYF) all falling in excess of 3% during the month. On a positive note, strong security selection in Information Technology and Energy boosted performance during the month. Within Information Technology, Juniper Networks (JNPR), Motorola Solutions (MSI), and HP Inc. (HPQ) were all beneficial to relative performance. In Energy, Anadarko Petroleum (APC), ConocoPhillips (COP) and Kinder Morgan Inc. (KMI) were sizable overweight positions which all outperformed the sector.
The Fund’s bias continues to be towards cyclically sensitive sectors such as Industrials, Consumer Discretionary, and Financials, where we have been witnessing meaningful share buyback activity. Buyback activity has clearly not been rewarded by the market over the past year, and as we have noted in the past, companies that engage in share buybacks are typically more attractively valued. We believe that this value bias has been among the largest negative contributors to relative underperformance over the past year. The last time that we witnessed this type of outperformance of growth vs. value stocks was leading into the technology bubble of the late 1990s. We observe an excessive amount of optimism in growth oriented stocks today, namely Information Technology, and in this environment, we take comfort in knowing that the fund currently trades at a meaningfully cheaper valuation than the Index (a representation of the broader equity market), with a forward P/E of 13.35 vs. 16.65 for the Index. On a cash flow basis, the fund’s price-free-cash-flow (P/FCF) is 14.02 vs. 23.25, substantially cheaper than the Index. Given this dispersion in valuations, we believe that value stocks provide more margin of safety and more total return potential relative to growth stocks. We remain confident in our investment process; we will continue to keep you apprised with insights on our portfolio and results. In the interim, we encourage you to reach out to us with questions.
AdvisorShares Wilshire Buyback ETF
|Top 10 Positions||Bottom 10 Positions|
|DAVITA INC||2.71%||NVENT ELECTRIC PLC-W/I||0.24%|
|JUNIPER NETWORKS INC||2.51%||RELIANCE STEEL & ALUMINUM||0.26%|
|SL GREEN REALTY CORP||2.50%||MARKEL CORP||0.29%|
|WALGREENS BOOTS ALLIANCE INC||2.27%||FNF GROUP||0.29%|
|ANADARKO PETROLEUM CORP||2.26%||ALLEGHANY CORP||0.30%|
|HCA HEALTHCARE INC||2.21%||ROYAL CARIBBEAN CRUISES LTD||0.31%|
|FOOT LOCKER INC||2.21%||NUCOR CORP||0.33%|
|CONAGRA BRANDS INC||2.10%||EVEREST RE GROUP LTD||0.33%|
|CIGNA CORP||1.95%||ABBVIE INC||0.38%|
Portfolio Manager, TTFS
Chief Investment Officer, Wilshire Funds Management