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DBLV: May 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

Performance Review

The AdvisorShares DoubleLine Value Equity ETF (DBLV) posted a negative return of -4.82% in May 2019, ahead of its benchmark, the Russell 1000 Value Index, by 161 basis points. 

Market volatility rose during May as trade tensions resurfaced and expanded. After trade negotiations between the U.S and China fell apart, the U.S.-China trade war intensified as the U.S. increased tariffs on Chinese imports and placed Huawei on a trade blacklist given security concerns. In response, China increased tariffs on U.S. goods, announced plans to blacklist some U.S. firms and threatened to ban the export of rare earth to the U.S. The President also imposed tariffs on Mexican imports in an effort to pressure Mexico to take action to discourage the flow of Central American migrants to the U.S. border. This was followed by discussions on the removal of special trade status from India and potential tariffs against Australia. Since higher tariffs cause import prices to increase and, therefore, act as a tax on the consumer, the tariffs are a headwind for demand and threaten to cause the economy to slow significantly.

The heightened concerns about a more substantial slowdown were also reflected in lower bond yields, higher gold prices and a softer dollar. Consequently, earnings growth is at risk of further deceleration. By the end of May, most companies in the S&P 500 had reported Q1 2019 results, and the percentage of those companies meeting or beating expectations were in-line with 2018. However, based on consensus estimates of S&P 500 earnings, median EPS growth for Q2 2019 is expected to decelerate from Q1 and to be the lowest over the last couple of years.

The overall impact of the trade tensions on the stock market has been broad-based. Initially, multinational companies with significant overseas exposure sold off as a result of the higher tariffs, and technology stocks, particularly semiconductors, declined due to the ban on Huawei products. However, the market weakness spread to companies with limited overseas exposure, as fears grew that this would lead to a broad slowdown in the economy or even a recession. As a result, both growth and value stocks declined at a similar rate. In May, the S&P 500 returned -6.35%, versus the Russell 1000 Value Index at -6.43%, and the Russell 1000 Growth Index at -6.32%.

Furthermore, the yield curve flattened as bond yields at the long end of the curve declined, reflecting concerns that rates may be too tight. This also caused a portion of the yield curve to invert with both the 10 year and 2 year Treasury yields falling below the 3 month T-Bill rate. Expectations that the Fed would cut rates in the September and December meetings also rose. In response to the market turbulence, Fed Chairman Jerome Powell signaled that the Fed would take appropriate actions to sustain the economic expansion, implying that a future rate cut was on the table if trade conflicts with China and Mexico slowed U.S. growth. The prospects for renewed monetary accommodation provided some support to the market in early June.

In terms of sector attribution, monthly performance for DBLV was helped by exposures in Materials, Real Estate, and Utilities, offset by negative attribution from Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, and Information Technology. On a relative basis, DBLV was helped by Materials, Real Estate, Utilities, Information Technology, Industrials, Financials, Health Care, and Consumer Discretionary, offset by adverse results within Energy, Consumer Staples and Communications Services. Cash had a positive impact on performance.

Source: Bloomberg. As of 05.31.2019.          


The top detractors from monthly performance were Alibaba Group Hldg. (BABA), Halliburton Co. (HAL), FedEx Corp. (FDX), and Marathon Oil Corp. (MRO):

  • BABA (Consumer Discretionary) is the leading online and mobile commerce company in China, with dominant franchises in e-commerce, cloud computing, digital media and entertainment, and other innovative initiatives. The company enjoys strong entry barriers, related to scale and scope economies and network effects that also support and sustain other leading internet platform companies operating globally in winner-take-most markets. As a Chinese company, BABA is perceived as a risky bet amidst the escalating trade tensions between the PRC and the U.S., and its stock was adversely impacted during May as prospects for a quick resolution of those tensions dimmed. However, the trade tensions should accelerate China’s shift from export-led growth toward a consumer-led economy. We expect the benefit of this shift to more than offset the negative impact of higher tariffs on BABA’s ability to import goods from the U.S. into China. BABA is benefiting from the rising incomes of Chinese consumers and is also displacing inefficient traditional retail, thereby creating an enviable long-term growth opportunity for the company. In light of this, we added to our position.
  • HAL (Energy) is one of the largest energy services companies in the world. Its stock declined as escalation of the U.S.-China tariff war renewed fears about a slowdown in demand and drove oil prices lower. Volatility in reported weekly inventories also contributed to the decline in oil prices. However, rig counts continue to decline in the U.S. and most E&P companies have remained disciplined in their production growth plans. Furthermore, implementation of IMO 2020 regulations that require shippers to reduce their sulfur oxide emissions, should provide an incremental boost to crude oil demand, while the Iran sanctions should dampen global supply growth. We believe U.S. shale remains one of lowest cost and lowest risk assets outside of OPEC and expect U.S. production to grow meaningfully over an economic cycle. HAL has significant exposure to the U.S. shale market and should benefit from U.S. production growth. Therefore, we took advantage of the stock price weakness to add to the position.
  • FDX (Industrials) is a leading third-party logistics and delivery company operating air and ground based services on a global basis. FDX reversed all of the gains it had seen year-to-date after renewed energy was brought to the U.S.-China trade dispute. For the first three-and-a-half months of the year, the U.S. and China seemed to be on the path to a trade agreement. Things abruptly changed course in late April and the situation between the two countries has consistently deteriorated since then, with the U.S. announcing plans for even more tariffs on Chinese goods in the near future. Because of FedEx’s sensitivity to global trade and growth, its stock is disproportionately impacted by tariff and trade developments. Additionally, the announcement on May 30th that FedEx Ground will be moving to a 7 day delivery schedule year-round – though beneficial over the long-term – has increased expectations for expenses in the near-term, further delaying profit improvement hopes. To cap off the month, President Trump announced that he intends to place tariffs on Mexico, further dimming prospects for global growth and trade activity.
  • MRO (Energy) is a multi-basin E&P company with primarily U.S. onshore assets. Similar to HAL, the company was also impacted by lower oil prices due to concerns about the U.S.-China trade war. MRO also reported mixed Q1 2019 results as earnings surprised positively, but production growth was modestly below consensus expectation. That said, the company maintained its full year production guidance. Over the last few years, MRO has lowered its average operating cost/barrel significantly by divesting high cost assets, focusing resources on its most attractive assets, and leveraging technology to increase efficiency. It continues to balance production growth with free cash flow generation.

During the month, we added to our positions in the following: Alibaba Group Hldg. (BABA), American Electric Power Co. (AEP), Astrazeneca Plc. (AZN), Boeing Co. (BA), Eog Resources Inc. (EOG), Alphabet Inc. (GOOGL), Halliburton Co. (HAL), Pioneer Natural Resources Co. (PXD), and Xcel Energy Inc. (XEL). We reduced our positions in the following companies: Anadarko Petroleum Corp. (APC), Comcast Corp. (CMCSA), Dollar General Corp. (DG), and Motorola Solutions Inc. (MSI). We eliminated our holdings in 3M Co. (MMM).                        

Top Holdings

The top ten portfolio holdings, by weight and active weight, can be seen in the following tables:

Top 10 Portfolio Weights     Top 10 Portfolio Active Weights  

Active weight refers to the difference in allocation of an individual security or portfolio segment between a portfolio and its benchmark. For example, if a portfolio allocates 15% within the energy sector, and the benchmark’s allocation in energy is 10%, then the active weight of the energy segment of the portfolio is +5%. Active weight can also be referred to as relative weight. As of 05.31.2019


Relative to the Russell 1000 Value Index, DBLV is overweight consumer discretionary, energy, health care, industrials, information technology, and communication services. It is underweight consumer staples, financials, materials, real estate, and utilities. The portfolio holdings by absolute and relative sector weights are found in the accompanying charts:

As of 05.31.2019

The DBLV portfolio’s sector exposures primarily reflect the DoubleLine Equities team’s bottom-up investment process, which places an emphasis on individual stock selection. However, the macroeconomic views of DoubleLine Capital L.P. do inform secondarily these sector weightings.


We are constructive on the long-term outlook for the U.S. equity market, but remain cautious in the near-term, because of continued uncertainties related to the ongoing trade dispute with China, the growing U.S. debt balance driven by chronic deficit spending, and the economy’s continued dependence on support from the Fed. We are also increasingly concerned about the sustainability of high corporate profit margins, the risk of slower earnings growth and the prospect of downward pressure on valuation multiples, all of which constitute near-term headwinds.

In this environment, we continue to believe that value stocks should post better relative performance after having lagged growth stocks for nearly a decade. At month’s end, the price-to-earnings multiple on 2019 consensus estimates for DBLV was 14.5x, the Russell 1000 Value Index 14.0x, and the S&P 500 16.7x. In light of this, we continue to regard the current environment of elevated risks as supportive of the value-based strategy behind DBLV—particularly over a long-term investment horizon.

We thank you for your continued interest in DBLV.


Emidio Checcone
DoubleLine Capital
AdvisorShares DoubleLine Value Equity ETF (DBLV) Co-Portfolio Manager

Brian Ear
DoubleLine Capital
AdvisorShares DoubleLine Value Equity ETF (DBLV) Co-Portfolio Manager


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 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. Investing in mid and small capitalization companies may be riskier and more volatile than large cap companies. Because it intends to invest in value stocks, the Fund could suffer losses or produce poor results relative to other funds, even in a rising market, if the Sub-Advisor’s assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is incorrect. Other Fund risks include market risk, equity risk, large cap risk, liquidity risk and trading 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.