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HDGE: December 2018 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.

Portfolio Review

  1 Mth 3 Mth YTD 1 Yr 2 Yrs 3 Yrs 4 Yrs 5 Yrs Since Inception
(01.26.2011)
NAV 9.36% 14.41% 7.121% 7.121% -4.63% -7.80 -7.42% -7.98% -12.82%
Market Price 9.35% 14.5% 7.40% 7.40% -4.59% -7.82% -7.40% -8.01% -12.83%

As stated in the Prospectus, the total annual operating expenses are 3.29% (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.

For the month of December, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) gained 9.35% while the S&P 500 lost -9.03%.

Despite rising risk appetites, there is little money on the sidelines to power a bullish move. Under-ownership and/or over-ownership of stocks by the average U.S. household has traditionally been an extremely effective long term contrarian indicator. Household holdings of equity assets as a percentage of disposable personal income just surpassed the record high, which was set in 2000. This overweighting indicates that the public is currently investing aggressively, which is a big negative for the market from a contrarian point of view.

The market downdraft was concentrated in aggressive industry groups and aided downward by declines in cyclicals and levered companies.  Stocks of these companies underperformed the broader averages, as can be seen below, in charts from Two Rivers Analytics.

However, remarkably, the highest momentum stocks did not sell off as much relative to their prior ascent. Their massive outperformance through October remains mostly intact, as can be seen below. We expect further damage to these stocks and the fund is positioned accordingly.


Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month then 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 December 2018, the largest realized and unrealized gains were PetMed Express, Inc. (PETS), Wayfair, Inc. Class A (W), and Belden Inc. (BDC).

PetMed Express (PETS) stock eased -3.45% in the month. The company operates in a highly competitive environment marked by increasing pressure on pricing. Wayfair, Inc. (W) stock fell sharply by -15.18%. Their high customer acquisitions cost are leading the company to burn cash. Their flawed business model does not appear to be able to scale, which leads to their needing outside capital on a regular basis.  Belden (BDC) dropped on a revenue disappointment and continued to drop through December, finishing down -25.12%. Their inventory continues to slow and their reserves continue to decline.

The largest realized and unrealized losses for December were MINDBODY, Inc. Class A (MB), Aerojet Rocketdyne Holdings, Inc. (AJRD) and B&G Foods, Inc. (BGS).

MINDBODY, Inc. (MB) had been performing poorly, falling short of revenue expectations and losing higher value subscribers. However, the stock spiked on a surprise Christmas Eve takeover bid by a private equity firm. The stock ended December up 31.12%. Aerojet Rocketdyne (AJRD) stock ended the month basically flat (+0.06%). The company has very low earnings quality. Both sales and EPS results, when measured on an ongoing basis, fell short of expectations. Absent major changes in contract estimates and non-recurring benefits, earnings would have missed expectations. B&G Foods stock eased -4.68%. Organic food sales growth fell sharply year over year. Receivables levels remained elevated and free cash flow failed to cover the dividend.

Top 10 Holdings

Ticker Security Description Portfolio Weight %
PTC PTC INC -4.79%
MTZ MASTEC INC -4.04%
MSCI MSCI INC -3.99%
DECK DECKERS OUTDOOR CORP -3.84%
MKC MCCORMICK & CO-NON VTG SHRS -3.47%
CACC CREDIT ACCEPTANCE CORP -3.45%
DOV DOVER CORP -3.27%
NTCT NETSCOUT SYSTEMS INC -3.14%
BABA ALIBABA GROUP HOLDING-SP ADR -3.11%
SNA SNAP-ON INC -2.90%

As of 12.31.2018. Holdings subject to change. Cash holdings not included.

 

Respectfully,

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

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.