FLRT: March 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 March, the AdvisorShares Pacific Asset Enhanced Floating Rate ETF (NYSE Arca: FLRT) returned -0.26% (NAV), versus the S&P/LSTA U.S. Leveraged Loan 100 Index (“benchmark”) return of -0.47%.
In March, the S&P/LSTA U.S. Leveraged Loan 100 Index (which tracks the 100 largest loans in the broader Index) returned -0.47%. This negative monthly return follows two strong months of positive returns resulting in the year to date total return of 5.15%. The first quarter of 2019 represents the best quarterly performance for the asset class since 3Q09. Given that the index represents the largest and most liquid loans, it tends to be more volatile as these issues react more quickly to market dynamics. Continued uncertainty regarding trade/tariff impact, worries of slowing domestic and global growth, along with persistent redemptions from the asset class, created downward pressure during the month. Technicals remain steady as a low default environment, a supportive CLO bid, and steady (but waning) economic and corporate fundamentals provide support to the asset class. Managers printed near 12-month average amounts of CLOs in March, bringing year to date issuance to approximately $28bn, nearly 11% lower than last year’s record level. Loans underperformed both the investment grade bond market and their high yield fixed rate counterparts during March as investors sought out fixed rate offerings following the dovish announcement of the Fed. The Bloomberg Barclays US Aggregate Index and the Bloomberg Barclays US Corporate High Yield Index returned 1.92% and 0.94%, respectively. March’s return was led lower by higher rated credit quality loans with BB credits returning -0.28%, single B credits returning -0.27%. For context, BB credits now account for roughly 30% of the index, whereas, single B rated credits account for approximately 54%.
According to JP Morgan, the par-weighted default rate ended March at 1.00%, which is the lowest level since April 2012 (0.81%). The default rate declined 2 basis points month-over-month and is down 152 basis points from a year ago. For context, the long-term average for the loan default rate is 3.07%, based on annual default rates back to 1998.
The market reversed course in March following the adoption of a dovish policy stance by the Fed. Large retail outflows and concerns of macro slowing and leverage risk in credit markets culminated in a strong sell-off in the final days of the month. Given the communication of the Fed and 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 %|
|First Data Corporation 04/26/24 Term Loan||1.72%|
|HCA 3/18 B10 03/13/25 Term Loan||1.71%|
|PPDI (Jaguar Holding) 08/18/22 Term Loan||1.70%|
|Dun and Bradsteet 02/06/26 Term Loan||1.70%|
|Level 3 Financing Inc 02/22/24 Term Loan||1.70%|
|INTELSAT B3 11/27/23 TERM LOAN||1.70%|
|Telesat Canada 2/17 Cov-Lite Term Loan||1.70%|
|Kronos Incorporated 11/01/23 Term Loan||1.68%|
|CAESERS RESORTS 12/23/2024 Term Loan||1.68%|
|Vistra 12/14/23 Term Loan||1.68%|
As of 03.31.2019.
Managing Director, Pacific Asset Management
AdvisorShares Pacific Asset Enhanced Floating Rate ETF (FLRT) Portfolio Manager
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