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HDGE: February 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

For the month of February, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost 7.30% while the S&P 500 rose 3.21%.

Performance History (02.28.2019) HDGE NAV HDGE MKT
1 Month -7.30 -7.52
3 Month -10.53 -10.52
Year-to-Date -18.20 -18.17
1 Year -15.36 -15.46
3 Years -16.14 -16.18
5 Years -11.42 -11.46
Since Inception (01.26.2011) -14.72 -14.73

As stated in the Prospectus, the total annual operating expenses are 2.72% (includes 0.17% acquired fund fees). 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 month end performance please visit

Portfolio Review

In the intermediate to long term, stock prices are driven by earnings. It is very troubling that stock analysts have been downgrading 2019 estimates for company operating earnings (see charts).  This is a clear warning, in our view, that the markets this year will become increasingly treacherous. But other than a downdraft in late 2018, why hasn’t the market fallen more than it has?  In fact, there has been a growing consensus the country will avoid a recession, that the Federal Reserve Board will stop raising interest rates and that recent market surges have been propelled by companies buying back their own stock.  We view these rationalizations as just that.

Earnings decreases and slowing growth should hurt stock prices in the intermediate term.  It also means companies could become increasingly unwilling to tap excess cash or use debt to execute buybacks. This means even less support for the stock market.  Look out below.

The Smart Money / Dumb Money indicator from remains bearish. The Investors Intelligence Bulls/Bears, a sentiment poll of market newsletter writers, also indicted investors should remain cautious. The poll, basically unchanged from the week before, indicated 53% of the newsletter writers were bullish and 20% bearish. This is another negative, from a contrarian point of view.

Another indication of over-bullish sentiment can be seen below. This chart shows the snap-back in February for growth stocks. We should not be surprised that high sales growth company stocks outperformed. However, we did not see a corresponding relationship with high growth in earnings. High earnings growth stocks did not outperform. This seeming contradiction can be explained by investor indifference to expenses and quality earnings. Potentially lower quality sales growth (unaccompanied by earnings) indicates highly speculative sentiment.

Another troubling sign is that value stocks (i.e., low multiple stocks) underperformed the market as a whole and underperformed higher multiple stocks.

Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended.  Stocks chosen were based on Two Rivers Analytics’ universe of stocks.  © Copyright 2019.  All Rights Reserved Two Rivers Analytics.  Further Distribution Prohibited without prior permission.

For the month of February 2019, the largest realized and unrealized gains were Cooper-Standard Holdings Inc. (CPS), AutoNation, Inc. (AN), Snap-on Incorporated (SNA) and Allscripts Healthcare Solutions, Inc. (MDRX).

Cooper-Standard dropped -21.38% during the month, on weak earnings. This auto parts maker disappointed investors. Market conditions in Asia and Europe were responsible for the miss. Commodity costs continue to increase and there is a general slowdown in the auto industry.

AutoNation dropped -9.01%. Auto sales are slowing and consumer credit is weakening. There is an increase in auto credit defaults. That, together with increasing competition in the space, means the environment for AN will become increasingly difficult.

Snap-on Incorporated stock fell sharply on earnings but closed the month down -3.61%. The company finances 60% of the tools it sells and could be using financing to pull sales forward. The lifespan of their tools is very long, so replacement business is limited. There is new competition coming in from newer toolmakers, especially from outside the US. The company’s diagnostic business is facing new competition as well.

Allscripts Healthcare also dropped sharply on earnings, closing down -9.08%. There is a divergence between expectations and guidance that will likely result in a disappointment when earnings are released. Organic growth is negative, in our opinion. Further, the adoption of ASC 606 artificially boosted non-GAAP EBITDA and margins. Investors may not fully understand this.

The largest realized and unrealized losses for February were Wayfair, Inc. Class A (W), MSCI Inc. Class A (MSCI) and Deckers Outdoor Corporation (DECK) .

Wayfair stock was up 51.36% in February. Reported growth was better than expected. However, the company’s customer acquisition cost continues to ramp out of control. We are skeptical that there is a viable end-game to convert expensive-to-acquire customers to viable, repeat, profitable customers ever. In addition, the company will likely need external funding again in a few quarters due to deepening operating losses.

MSCI Inc. stock rose 8.49% in February. This ETF business trades at 11x sales. Bulls point to a stabilization in asset outflows. We continue to raise concerns that competition will drive fees and margins down for the foreseeable future. The stock’s high multiple will add fuel to the downside.

Deckers Outdoor stock was up 15.18% in February. The company reported results that beat estimates. However, channel checks indicate that the company is experiencing slowing to down sales which will result in disappointments to sales expectations and margin pressure. The ongoing restructuring has created a margin picture that is likely not sustainable. 

Top 10 Holdings

Ticker Security Description Portfolio Weight %
PTC PTC INC -4.95%

As of 02.28.2019. Holdings subject to change. Cash holdings not included.



Brad Lamensdorf
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager


Past Manager Commentary


The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

Bear Market (Bearish) is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

Bull Market (Bullish) is a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

short position is the sale of a borrowed investment with the expectation that it will decline in value.

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. The Fund may invest in (or short) ETFs, ETNs and ETPs. In addition to the risks associated with such vehicles, investments, or reference assets in the case of ETNs, lack of liquidity can result in its value being more volatile than the underlying portfolio investment. Other Fund risks include market risk, equity risk, short sales and leverage risk, large cap risk, early closing risk, liquidity risk and trading risk. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. See prospectus for specific risks and details.

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.