HOLD: December 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/hold.
During the month of December, the AdvisorShares Core Reserves (NYSE Arca: HOLD) returned 0.27% vs.0.14% on the 1-3 month T-bill Index. The fund paid out income of 20.4 cents per share, with a Bloomberg indicated yield of 2.45%. The Bloomberg Barclays US Corporate 1-3 Year Average OAS was .04% tighter on the month, ending at 0.43%.
During the month of December front-end rates were several basis-points lower, which benefited the fund due to its duration positioning.
Among the larger sectors, Industrials were the best performers, returning 0.30% on the month. Some of the better performing positions include the Buckeye Partners 2021’s, NuStar Logistics 2021’s, and Tupperware 2021’s, which returned 0.70%, 0.66%, and 0.52%. All three positions benefited from both spread tightening as well as lower rates. There were no significant outliers to the downside.
Financials returned 0.21% on the month. Among the better performing positions within that sector are the Air Lease 2022’s, Goldman Sachs 2020’s, and Aviation Capital 2021’s, which returned 0.50%, 0.45%, and 0.34%.
Within the securitized sector, asset-backed securities continue to trade well as spreads tightened due to limited inventory on dealer balance sheets. The sector returned 0.17$ on the month.
During the month of December ,there was $2.0mm in maturities and structured product paydowns. Some of the larger corporate purchases include Tupperware Brands 2021’s and Entergy Corp 2022’s.
Recent Headlines / Looking Ahead
The end of 2019 was reflective of much of the year, as risk assets traded better both in the equity and fixed income markets. Both the lack of new issues and limited dealer inventory at year-end contributed to the spread tightening.
As we look ahead at 2020, one thing to keep an eye on is the amount of money the Fed is pumping into the market through either quantitative easing (QE) or repo operations. The Fed began repo operations in September of this year, and it was expected that they would do so through year-end. However, even the most recent repo operation was heavily utilized, and the market currently expects the Fed to remain involved into mid-2020. Risk-assets have traded well over the past decade as the Fed has injected record amounts of money into the market through its QE programs. As the Fed begins to grow its balance-sheet once again, it seems supportive of risk-assets, at least in the near-term.
|Security Description||Price $||Portfolio Weight %|
|US TREASURY N/B 1.375 5/31/2020||99.89||4.96%|
|DCENT 2015-A2 A 1.9 10/17/2022||100.01||2.59%|
|OCCIDENTAL PETROLEUM COR 2.6 8/13/2021||100.77||2.34%|
|AMXCA 2017-6 A 2.04 5/15/2023||100.16||2.21%|
|CCCIT 2017-A3 A3 1.92 4/7/2022||100.00||2.20%|
|CREDIT SUISSE NEW YORK 5.4 1/14/2020||100.09||2.04%|
|TEVA PHARMA FIN IV LLC 2.25 3/18/2020||100.18||2.00%|
|BUCKEYE PARTNERS LP 4.875 2/1/2021||101.81||2.00%|
|ELANCO ANIMAL HEALTH INC 3.912 8/27/2021||102.62||1.99%|
|US TREASURY N/B 1.375 2/15/2020||99.97||1.99%|
As of 12.31.2019
|Portfolio Characteristics||Yield-to-Worst||Coupon||Maturity (Yrs)||Effective Duration|
|as of 12.31.2019||2.210||3.224||1.360||0.740|
Credit Quality Breakdown
Credit quality ratings are primarily sourced from Moody’s but in the event that Moody’s has not assigned a rating the Fund will use Standard & Poor’s (the “S&P”). If these ratings are in conflict the most conservative rating will be used. If none of the major rating agencies have assigned a rating the Fund will assign a rating of NR (non-rated security). The ratings represent their (Moody’s and S &P) opinions as to the quality of the securities they rate. Ratings are relative and subjective and are not absolute standards of quality. The credit ratings are published rankings 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.
Source: Sage Advisory Services; All data as of 12.31.2019.
Past Manager Commentary
- The 2/10 yield curve measures the difference between the 2-year Treasury and the 10-year Treasury giving an indication of the curve’s steepness. The curve’s flattening or steepening can be used to predict changes in economic output and growth.
- 30-Day SEC yield (standardized yield) is an annualized yield that is calculated by dividing the investment income earned by the Fund less expenses over the most recent 30-day period by the current maximum offering price.
- A basis point is one hundredth of a percentage point (0.01%).
- The Bloomberg indicated yield the most recently announced dividend amount, annualized based on the payment frequency, then divided by the last price.
- The Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. One cannot invest directly in an index.
- Coupon is the interest rate stated on a bond when it’s issued. The coupon is typically paid semi-annually.
- Credit spread is the spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
- Duration is a measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. Duration is expressed as a number of years. Rising interest rates mean falling bond prices, while declining interest rates mean rising bond prices.
- The Fed Funds rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. The rate may vary from depository institution to depository institution and from day to day.
- Investment grade is a rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor’s, use different designations consisting of upper- and lower-case letters ‘A’ and ‘B’ to identify a bond’s credit quality rating. For example, ‘AAA’ and ‘AA’ (high credit quality) and ‘A’ and ‘BBB’ (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations (‘BB’, ‘B’, ‘CCC’, etc.) are considered low credit quality (speculative), and are commonly referred to as “junk bonds”.
- London Interbank Offered Rate (LIBOR) is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. The LIBOR is derived from a filtered average of the world’s most creditworthy banks’ interbank deposit rates for larger loans with maturities between overnight and one full year.
- A mortgage backed security is a type of asset-backed security that is secured by a mortgage, or more commonly a collection (“pool”) of sometimes hundreds of mortgages.
- The option adjusted spread (OAS) is a measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is adjusted to take into account an embedded option. Typically, an analyst would use the Treasury securities yield for the risk-free rate. The spread is added to the fixed-income security price to make the risk-free bond price the same as the bond.
- Spread is the difference between the bid and the ask price of a security or asset.
- The subsidized yield reflects fee waivers and/or expense reimbursements recorded by the Fund during the period. Without waivers and/or reimbursements, yields would be reduced.
- Treasury inflation-protected securities (TIPS) are Treasury bonds that are adjusted to eliminate the effects of inflation on interest and principal payments, as measured by the Consumer Price Index (CPI).
- The unsubsidized yield does not adjust for any fee waivers and/ or expense reimbursements in effect. If the Fund does not incur any fee waivers and/or expense reimbursements during the period, the 30-Day subsidized yield and 30-Day unsubsidized yield will be identical.
- A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates. The curve is also used to predict changes in economic output and growth.
- Yield-to-worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting. The yield to worst is calculated by making worst-case scenario assumptions on the issue by calculating the returns that would be received if provisions, including prepayment, call or sinking fund, are used by the issuer. This metric is used to evaluate the worst-case scenario for yield to help investors manage risks and ensure that specific income requirements will still be met even in the worst scenarios.
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. Diversification and sector asset allocation do not guarantee a profit, nor do they eliminate the risk of loss of principal. An investment in the Fund is subject to risk, including the possible loss of principal amount invested. The Fund’s investment in fixed income securities will change in value in response to interest rate changes and other factors, such as the perception of the issuer’s creditworthiness. Fixed income securities with longer maturities are subject to greater price shifts as a result of interest rate changes than fixed income securities with shorter maturities. The Fund’s investments in high-yield securities or “junk bonds” are subject to a greater risk of loss of income and principal than higher grade debt securities. In addition the Fund is subject to leveraging risk which tends to exaggerate the effect of any increase or decrease in the value of the portfolio securities. The Fund is also subject to liquidity risk, issuer risk, foreign currency and investment risk, prepayment risk and trading risk. See prospectus for details regarding specific risks.
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 material were 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.