HDGE: September 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/etfs/hdge.

Performance Review

For the month of September, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -6.01% while the S&P 500 gained 1.87%.

Performance History (09.30.2019) HDGE NAV (%) HDGE Market (%)
1 Month -5.80 -6.01
3 Month 2.92 2.82
Year-to-Date -22.03 -21.97
1 Year -10.79 -10.85
3 Years -11.91 -11.91
5 Years -11.20 -11.20

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

The market remains overvalued and overlevered. Investors are “all-in” on stocks, meaning that their portfolios have abnormally high proportions of equity exposure. The market’s rise from last December’s lows induced investors to rush into the stock market in what is sometimes called “FOMO” or “fear of missing out”. The latest AAII survey shows that individual investors invested much of their cash cushions in stock. Typcially, investors hold 15% to 30% of their portfolios in liquid cash and equivalents. They are now holding only 14.6% of their portfolios in liquid instruments, among the lowest in 30 years.

A similar statistic for professional investors confirms the same behavior. Among mutual fund managers, Rydex mutual fund timers, the AAII folks, and pension funds, the average cash balance is at or near all-time lows. The implication is that there is little money available on the sidelines to continue propelling the market upward.

 

Going into more detail, investor behavior embraced risk, but somewhat selectively. 

Investors tilted towards cyclical industries as the market recovered then dropped during September. Risk appetites are rising, but shifting from higher growth tech and health care companies, back towards bricks and mortar cyclicals.

Momentum stocks, defined as stocks with positive returns over the past twelve months, excluding the most recent month, fell markedly during September. The breakage of momentum correlates with the decline of recent money-losing IPOs and the failure of the WeWork IPO.  The high growth stocks that frequently make up the momentum stock basket, are suffering.

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 September 2019, the largest realized and unrealized gains were Talend SA Sponsored ADR (TLND), MRC Global Inc. (MRC), Hutchison China Meditech Ltd Sponsored ADR (HCM)and Netflix, Inc. (NFLX).

Talend (TLND) stock fell  -16.49% during September. The cloud/big data software company faces declining estimates for free cash flow next year, caused by a shortening of customer contract duration. It also filed and issued a convertible bond that will dilute shareholders. MRC Global (MRC) stock sank over the course of the month, falling -3.50%. The oilfield pipe and valve company issued reduced guidance that led investors to sell the stock down. We exited the position. Hutchison China Meditech (HCM) stock plunged -18.13% mid-month. The company announced plans to sell a small stake in its Chi-Med holdings, which would allow HCM to deconsolidate the stake afterwards. Netflix, Inc. (NFLX) declined -8.90%. The company faces significant new streaming competition including from Disney, Hulu and others, at the same time that cash burn continues and profitability is declining. 

The largest realized and unrealized losses for September were Capri Holdings Limited (CPRI) , Wave Life Sciences Ltd. (WVE) and BEST, Inc. Sponsored ADR Class A (BEST).

Capri Holdings (CPRI) stock rose 25.70%. This branded apparel company exceeded growth forecasts despite falling short on margins and earnings.  Affirmed guidance led investors to bid up the stock. Wave Life (WVE) stock lost -10.74%, net,  despite gaining earlier in the month on an FDA approval for its experimental muscular dystrophy drug.  We have covered the short. Chinese logistics company, BEST, Inc. (BEST) gained 20.55% on the month. The fund exited the position.

 

Top Holdings

Ticker Security Description Portfolio Weight %
SNA SNAP-ON INC -2.62%
CIT CIT GROUP INC -2.53%
HOG HARLEY-DAVIDSON INC -2.09%
BC BRUNSWICK CORP -2.04%
THO THOR INDUSTRIES INC -1.98%
CWK CUSHMAN & WAKEFIELD PLC -1.96%
CPRI CAPRI HOLDINGS LTD -1.94%
RUSHA RUSH ENTERPRISES INC -1.83%
PTC PTC INC -1.81%
GT GOODYEAR TIRE & RUBBER CO -1.77%

As of 09.30.2019. 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.