FLRT: 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 www.advisorshares.com/fund/flrt.
In May, The AdvisorShares Pacific Asset Enhanced Floating Rate ETF (NYSE Arca: FLRT) returned -0.52% (NAV), versus the S&P/LSTA U.S. Leveraged Loan 100 Index (“benchmark”) return of -0.67%.
In May, the S&P/LSTA U.S. Leveraged Loan 100 Index (which tracks the 100 largest loans in the broader Index) returned -0.67%. The negative return for the index was the worst monthly return since returning -3.16% in December 2018. The YTD return of the index is 6.61%, representing the best performance for any comparable period since 2009. The index represents the largest and most liquid loans, so it tends to be more volatile as these issues react more quickly to market dynamics. Continued trade headwinds, uncertain geopolitical outcomes, and retail outflows weighed heavy on May’s monthly performance. The average price of the index dipped over the month to $97.78 but remains up since the start of the year by $4.51. Anecdotally, the share of loans bid at par level or above shrank to 10% of the market, compared to April’s level of 27%. Nearly ¾ of the index is bid between 97 and par levels. Counteracting continued retail outflows (there is a current 28-week withdrawal streak resulting in nearly $28bn leaving the asset class) is the supportive technical dynamic. CLO issuance in May was $10bn and compared to 2018’s record CLO issuance, 2019 is slightly ahead at this point in the calendar. Loans underperformed the investment grade bond market but outperformed their high yield fixed rate counterparts during May. For context, the Bloomberg Barclays US Aggregate Index and the Bloomberg Barclays US Corporate High Yield Index returned 1.78% and -1.19%, respectively. Per credit quality, May’s return was lower across the board with BB credits returning -0.17%, single B credits returning -0.26%, and CCCs returning -0.24%. 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 May at 1.27% well below the longer-term average of 3.07%.
The market reversed course in May as risk-based assets suffered due to uncertain trade and tariff policy, geopolitical instability, and worries of unclear central bank action. Retail outflows continued in light of this but CLO issuance provided the backdrop to offset investor demand. 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||1.71%|
|Dun and Bradsteet 02/06/26 Term Loan||1.71%|
|HCA 3/18 B10 03/13/25 Term Loan||1.70%|
|INTELSAT B3 11/27/23 TERM LOAN||1.69%|
|PPDI (Jaguar Holding) 08/18/22 Term Loan||1.69%|
|Kronos Incorporated 11/01/23 Term Loan||1.69%|
|Level 3 Financing Inc 02/22/24 Term Loan||1.69%|
|Telesat Canada 2/17 Cov-Lite Term Loan||1.69%|
|CAESERS RESORTS 12/23/2024 Term Loan||1.68%|
|Formula One 02/01/24 Term Loan||1.68%|
As of 05.31.2019. Excludes cash positions.
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