FLRT: July 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/flrt.
In July, The AdvisorShares Pacific Asset Enhanced Floating Rate ETF (NYSE Arca: FLRT) returned 0.80% (NAV), versus the S&P/LSTA U.S. Leveraged Loan 100 Index (“benchmark”) return of 1.09%.
In July, the S&P/LSTA U.S. Leveraged Loan 100 Index (which tracks the 100 largest loans in the broader Index) returned a robust 1.09%. The strong monthly performance was a substantial improvement over June’s 0.23% return and even more so from May’s return of -0.57% which represented the worst monthly return since December 2018. The YTD return of the index is 7.96%, representing the strongest YTD return in the last decade (2009). The strong CLO bid and lighter outflows, joined with favorable present conditions (i.e. lower rates, GDP, and low inflation) are proving to be a goldilocks scenario for fixed income/bond investors. Subsequently, the continued trade uncertainty, geopolitical instability, central bank action did not prove to be strong enough headwinds to halt July’s monthly performance. The average price of the index in July slightly increased to $97.02 from $96.78 in June. Counteracting abating retail outflows (there is a 38-week withdrawal streak of assets leaving the asset class) is the supportive technical dynamic. CLO issuance in July was $9.3bn down from $10.2bn in June. YTD CLO issuance stands at $74bn (slightly behind the 2018 record CLO issuance of $78.8bn at this time last year). 2018 was the high watermark for CLO issuance at $130bn, so this technical is a tough act to follow.
Loans outperformed both the investment grade bond market and their high yield fixed rate counterparts during July. For context, the Bloomberg Barclays US Aggregate Index and the Bloomberg Barclays US Corporate High Yield Index returned 0.22% and 0.56%, respectively. Per credit quality, July’s performance was advanced by higher quality names over lower quality names with BB credits returning 0.79%, single B credits returning 0.84%, and CCCs returning 0.53%. For context, BB credits now account for roughly 30% of the index, whereas, single B rated credits account for approximately 52%. According to J.P. Morgan, default activity has been higher than expected due in large part to the Energy sector. Including distressed exchanges, the par-weighted US loan default rate is 1.83%, although this level declines to a more modest 1.67% ex-Energy.
The market performed well in July as slowing retail outflows, strong CLO technicals, and a favorable environment for fixed income provided support. Given the global central bank direction and domestic consumer sentiment, we continue to believe a balanced risk approach in the portfolio remains important. We favor strong credits possessing a sound investment thesis and hold the view that credit selection, liquidity, flexibility, and diligence remain paramount to performance in a divided market.
Top 10 Holdings
|Security Description||Portfolio Weight %|
|Dun and Bradsteet 02/06/26 Term Loan||1.72%|
|INTELSAT B3 11/27/23 TERM LOAN||1.71%|
|CHARTER COMMUNICATIONS TLB 04/30/25 TERM LOAN||1.71%|
|Level 3 Financing Inc 02/22/24 Term Loan||1.71%|
|ZAYO GROUP TLB-2 01/19/24 Term Loan||1.71%|
|Berry Global, Inc 10/01/22 Term Loan||1.70%|
|REFINITIV US HOLDINGS, INC. 10/01/25 TERM LOAN||1.70%|
|NVA Holdings, Inc. 02/02/25 Term Loan||1.70%|
|Telesat Canada 2/17 Cov-Lite Term Loan||1.69%|
|PPDI (Jaguar Holding) 08/18/22 Term Loan||1.69%|
As of 067.31.2019. Excludes cash positions.
Managing Director, Pacific Asset Management
AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) Portfolio Manager
Past Manager Commentary
A basis point (bps) is a unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument.
A collateralized loan obligation (CLO) is a security backed by a pool of debt, often low-rated corporate loans.
Downside risk is the likelihood that a security will decline in price, or the amount of loss that could result from that potential decline. Liquidity is the degree to which an asset or security can be bought or sold in the market without affecting the asset’s price. Leverage is the amount of debt used to finance a firm’s assets.
The S&P/LSTA U.S. Leveraged Loan 100 Index is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments. One cannot invest directly in an index.
The Bloomberg Barclays Capital Aggregate Bond Index measures the performance of the U.S. investment grade bond market. One cannot invest directly in an index.
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. Investing in derivatives may be riskier than other types of investments because they are more sensitive to change in economic or marketing conditions that could result in losses that significantly exceed the Fund’s original investment. The Fund primarily invests in floating rate loans and floating rate debt securities. The market for floating rate loans may be subject to irregular trading activity, wide bid/ask spreads, and extended trade settlement periods. The floating rate feature of loans means that floating rate loans will not generally experience capital appreciation in a declining interest rate environment. Declines in interest rates may also increase prepayments of debt obligations and require the Fund to invest assets at lower yields. Other Fund risks include market risk, leverage risk, foreign investment risk, liquidity risk, income and interest rate risk, liquidity risk, management risk, high yield securities risk, loan participation risk, prepayment risk, and trading risk. Please see the 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 credit ratings referenced in this commentary are published rankings by Moody’s and are 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. 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.
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