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CWS: April 2019 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/cws.

Performance Review

April was the month when Wall Street finally reached a new all-time high. The S&P 500 closed out April at 2,945.83. That was a new high. A few days before, the index closed above the previous peak from September.

So what happened is that the market had a nasty spill late last year, and we’ve now made it all back. It was tough going through that, but our long-term focus made it much easier for our AdvisorShares Focused Equity ETF (NYSE Arca: CWS).

Now let’s look at the numbers. Last month, shares of the AdvisorShares Focused Equity ETF gained 3.74% in April. The shares Net Asset Value gained 4.35%. The S&P 500 gained 3.93% during April. Including dividends, the index was up 4.05% in April.

What made April such a good month for stocks? The major reason was good earnings news. The Q1 earnings results came in better than investors had been expecting. We saw that with the stocks in our portfolio. The strong growth during the first quarter was confirmed by the government’s GDP report. The report showed that the U.S. economy grew by 3.2% during Q1. This report will be updated a few more times.

We also had a Federal Reserve meeting at the end of the month, and once again, the central bank decided to hold steady on interest rates. Not that long ago, investors had been expecting several rate increases this year. Now it looks doubtful we’ll get even one rate hike. That’s good news for stocks.

In early May, we got the jobs for April, and it showed that the U.S. economy now had the lowest jobless rate since 1969. In fact, we have the lowest peacetime unemployment rate in over 70 years. It wasn’t long ago that people were fretting over a slowdown near the start of the year. Fortunately, the economy continues to perform well.

Portfolio Review

Now let’s look at what drove our impressive gains in April. Our big winner last month was Disney (DIS). In fact, the Mouse House had its best month in nearly 20 years. It’s odd that Disney is doing so well right now. The company has made important improvements, yet the stock hadn’t done much of anything. That is, until April.

Also in April, “The Avengers” movie completely blew up at the box office. For the opening weekend, the movie did $1.2 billion. That’s about one-quarter of what Disney paid for Marvel ten years ago. Disney now has nine of the ten largest opening weekends in movie history.

Earlier this month, Disney had a great rollout of its streaming service. I think the news on Disney has been so negative for so long that anything positive can help propel the shares. This week (April 29th), the stock touched a new all-time high.

The company is serious about taking on Netflix and they have an impressive service in Disney+. It’s also very competitive price-wise: $7 per month or $70 per year. Not only did Disney’s stock surge, but it held on to its gains and even pushed a little higher.

I suppose investor sentiment has been negative on Disney for years since it’s hard for some people to look positively on Disney. But even Disney critics have been impressed with Bob Iger’s strategy. Content really is king, and it will be hard to compete against the Mouse House. Disney gained 23.5% in April.

On Tuesday, April 9, Cerner (CERN) said it had reached an agreement with Starboard Value, an activist shop. That’s one of those firms that takes a position in a company, and then advocates for changes. We’ve done well in recent years thanks to the work of activists. After some back and forth, Cerner and Starboard reached an agreement to make some changes at Cerner.

Most of the details aren’t terribly important for our purposes, but I want to highlight two. One is that the healthcare-IT firm will initiate a dividend. The other is that Cerner’s buyback authorization has been increased by $1.2 billion. That’s a big chunk of change. The company now has approval to repurchase $1.5 billion worth of CERN stock.

Then on April 25, Cerner reported Q1 earnings 61 cents per share. That was in the center of their guidance. Sales rose 8% to $1.39 billion.

For Q1, Cerner had operating cash flow of $317.1 million and free cash flow of $123.5 million. For Q2, Cerner expects earnings of 63 to 65 cents per share on revenue of $1.41 to $1.46 billion. For all of 2019, Cerner sees earnings of $2.64 to $2.72 per share. That’s up from the previous guidance of $2.57 to $2.67 per share. For the month, Cerner gained 16% for us.

Other big winners for us last month were FactSet (FDS), which gained 11.1%, and Broadridge Financial Solutions (BR), which went up 13.9%. Eagle Bancorp (EGBN) returned just over 10% for the month.

Portfolio Attribution

Here’s how all 25 positions performed during the month of April:

Company

Symbol

29-Mar

30-Apr

Gain/Loss

Disney

DIS

$111.03

$136.97

23.36%

Cerner

CERN

$57.21

$66.45

16.15%

Broadridge Financial

BR

$103.69

$118.13

13.93%

FactSet Research Sys

FDS

$248.27

$275.87

11.12%

Eagle Bancorp

EGBN

$50.20

$55.26

10.08%

Hershey

HSY

$114.83

$124.85

8.73%

Moody’s

MCO

$181.09

$196.62

8.58%

Torchmark

TMK

$81.95

$87.66

6.97%

Intercont Exchange

ICE

$76.14

$81.35

6.84%

Sherwin-Williams

SHW

$430.71

$454.83

5.60%

JM Smucker

SJM

$116.50

$122.63

5.26%

Church & Dwight

CHD

$71.23

$74.95

5.22%

Ross Stores

ROST

$93.10

$97.66

4.90%

RPM International

RPM

$58.04

$60.65

4.50%

Continent Building Pr

CBPX

$24.79

$25.65

3.47%

Signature Bank

SBNY

$128.07

$132.07

3.12%

AFLAC

AFL

$50.00

$50.38

0.76%

Cognizant Technology

CTSH

$72.45

$72.96

0.70%

Danaher

DHR

$132.02

$132.44

0.32%

Fiserv

FISV

$88.28

$87.24

-1.18%

Raytheon

RTN

$182.08

$177.59

-2.47%

Becton, Dickinson

BDX

$249.73

$240.74

-3.60%

Stryker

SYK

$197.52

$188.91

-4.36%

Check Point Software

CHKP

$126.49

$120.76

-4.53%

Hormel Foods

HRL

$44.76

$39.94

-10.77%

Source: Yahoo Finance

Portfolio Changes

The philosophy of the AdvisorShares Focused Equity ETF is to make portfolio changes just once a year. At the end of the year, we add five stocks and delete five. We made our changes in December 2018, so there were no changes to make this month.

Top 10 Holdings

Here are the ETF’s top ten holdings as of April 30, 2019:

 

Ticker Security Description Portfolio Weight %
MCO MOODY’S CORP 4.79%
FDS FACTSET RESEARCH SYSTEMS INC 4.63%
DHR DANAHER CORP 4.42%
CERN CERNER CORP 4.32%
DIS WALT DISNEY CO/THE 4.31%
SJM JM SMUCKER CO/THE 4.27%
SBNY SIGNATURE BANK 4.19%
SYK STRYKER CORP 4.16%
BR BROADRIDGE FINANCIAL SOLUTIO 4.10%
FISV FISERV INC 4.02%

 

Management Fee

In a first for the ETF industry, the portfolio manager of CWS has “skin in the game.” The manager’s compensation is directly tied to portfolio’s performance. Using the trailing 12-month returns of CWS vs. its S&P 500 Index benchmark, stronger outperformance is rewarded with a larger management fee while weaker underperformance is penalized with a smaller management fee. The CWS fulcrum fee was 0.65% during April 2019. After the Fund’s April performance, the CWS fulcrum fee will adjust to 0.73% in May 2019.

 

Respectfully,

Eddy Elfenbein
Crossing Wall Street
AdvisorShares Focused Equity ETF (CWS) Portfolio Manager

Definitions:

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. One cannot invest directly in an index.

EBITDA stands for earnings before interest, taxes, depreciation and amortization. EBITDA is often used as an indicator of a company’s financial performance and as a proxy for the earning potential of a business.


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. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. Shares of the Fund may trade above or below their net asset value (“NAV”). The trading price of the Fund’s shares may deviate significantly from their NAV during periods of market volatility. There can be no assurance that an active trading market for the Fund’s shares will develop or be maintained. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time. Other Fund risks include market risk, liquidity risk, large cap, mid cap, and small cap risk. Please see prospectus for details regarding risk.

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.