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HDGE: June 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/hdge.

Performance Review

For the month of June, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost 7.93% while the S&P 500 gained 7.05%.

Performance History (06.30.2019) HDGE NAV (%) HDGE Market (%)
1 Mth -8.01 -7.93
3 Mth -6.75 -6.58
YTD -24.24 -24.11
1 Yr -18.16 -17.87
3 Yrs -15.56 -15.55
5 Yrs -11.53 -11.53

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 www.advisorshares.com
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Markets Review

Market sentiment is rising further into dangerous territory. SentimentTrader, who produces this index and chart, tell us that a bull-bear spread above 30% is a warning sign and a spread above 40% calls for defensive measures. The current reading is 37% on its way to 40%. It marks the third week that the index has ended in the danger zone.  The big change was the rise in bullish sentiment, which rose past 55% without a corresponding rise in bearish sentiment. Readings above 30% (on net) indicate there are too many bulls relative to bears. Rising spreads indicate the dangers are increasing too. It is notable that the number of bears forecasting a correction declined as well. We believe investors should be fully hedged at this time. You can see additional data and commentary on market sentiment in the Lamensdorf Market Timing Report.

A different look at the market shows similar excesses. Momentum stocks have gained very strongly, in two waves, since the beginning of the year. March was strong for momentum and June was even stronger. The following chart, from Two Rivers Analytics, shows that momentum is outperforming the broader market by increasingly wide margins. Momentum stocks tend to be ‘story stocks’ and favorites with which to express speculative sentiment. The last time this happened, in August 2018, the market became very unstable and plummeted through Q4 2018.

We can also see excesses from Wall Street analysts. Their enthusiasm often shows up in estimate increases for more speculative industry groups. Here is a record of analyst estimate revisions for biotech, one such group. It shows rising enthusiasm and extended bullish sentiment, in our view.

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.

Portfolio Review

For the month of June 2019, the largest realized and unrealized gains were At Home Group, Inc. (HOME), Macerich Company (MAC), and AutoNation, Inc. (AN).

At Home Group, Inc. (HOME) plunged -65.04% in the month. We covered the position at a profit. The company has very weak fundamentals, with deeply negative free cash flows, declining margins from increasing competition and sliding earnings estimates. They reported a very bad quarter. Macerich Company (MAC) fell -7.82% in June. The company is one of the weaker players suffering in the “mall apocalypse”. It has very high balance sheet leverage and declining cash flows. It will be the most difficult to turn around, if possible at all. AutoNation, Inc. (AN) ended June up 6.26%. We are bearish on auto volumes and auto finance. The company’s growth is tapering off and estimates are falling but the stock appears resilient and we covered the position.

The largest realized and unrealized losses for June were Shopify, Inc. Class A (SHOP) , Aerojet Rocketdyne Holdings, Inc. (AJRD) and Commercial Metals Company (CMC). Shopify, Inc. Class A (SHOP) gained 9.19% in June. The stock faces increasing competition in its markets and trades at an excessive valuation, but momentum stocks have been running and SHOP was no exception. We covered at a loss.

Aerojet Rocketdyne Holdings, Inc. (AJRD) rallied 16.04%. They have weak fundamentals, including sharply slower receivables turnovers. We covered the position. Commercial Metals Company (CMC) rose 33.71%. The company made a sizeable acquisition in November. It suffers from a steel glut and falling steel prices.

Top 10 Holdings

Ticker Security Description Portfolio Weight %
UPS UNITED PARCEL SERVICE-CL B -2.74%
PTC PTC INC -2.64%
BC BRUNSWICK CORP -2.53%
VFC VF CORP -2.19%
GBX GREENBRIER COS INC/THE -2.18%
CAJ CANON INC-SPONS ADR -2.16%
CMC COMMERCIAL METALS CO -2.13%
EAF GRAFTECH INTERNATIONAL LTD -2.12%
WAB WABTEC CORP -2.11%
PE PARSLEY ENERGY INC-CLASS A -2.10%

As of 06.30.2019. Holdings subject to change. Cash holdings not included.

 

Respectfully,

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

 

Past Manager Commentary

Definitions:

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 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. 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.