MINC: Q2 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/minc.

Market Overview

Fixed income market performance continues to be dominated by a mixture of geopolitical posturing (specifically, the use of tariffs as a policy tool), weaker economic data, and central bank headlines. Broader market fundamentals, technicals, and valuations still matter, but are frequently overshadowed by the aforementioned in the current environment.  The theme of the dovish central banks’ turn remains in place with market confidence growing that policy easing is forthcoming.  This significant development in the markets, when combined with improved valuations, has led to a return to favor of risk assets. 

The U.S. Treasury curve continues to twist and shift broadly flatter and lower with some segments of the curve remaining inverted.  We believe that this change in the curve is more indicative of technical factors in the market rather than of a looming US recession and we will continue to monitor the incoming economic data to form our opinion. As expected, the FOMC (Federal Open Market Committee) kept its target rate unchanged in a range of 2.25-2.50%.  While keeping rates steady in June, the Chair of the FOMC indicated the decision-making body is monitoring the impact of the tariff issues on the U.S. economic outlook. The market interpreted these comments as a sign that the FOMC has opened the door to the rate cut discussion.

Spread sectors performed well during the quarter led by corporate high quality, emerging markets high yield, and corporate high yield. Given the change in U.S. interest rates, longer duration within most asset classes outperformed on a total return basis.  Securitized sectors (asset-backed securities (ABS) and non-agency residential mortgage-backed securities (RMBS)), while still positive, lagged other sectors. 

We continue to see value in spread sectors.  The dovish turn by central bankers, benign consumer, housing, and corporate fundamentals, as well as the global demand for yield, continue to underpin our strategy.

Contributors / Detractors


  • The overweight to fixed income spread sectors and underweight to U.S. Treasuries.
  • Exposure to and issue selection within the corporate high yield sector. The market continues to perform well post the late-2018 selloff despite periods of softness in the second quarter as trade tensions ratcheted up and U.S. economic data showed some deceleration. Fundamentals have slowed but remain solid.  The technical environment remains supportive with a lack of issuance, the large volume of rising stars, and continued inflows leaving the high yield market with a massive supply shortfall. 


  • Exposure to high yield bank loans detracted as loans underperformed on a total return basis relative to other spread sectors due to the shorter nature of the asset class and weakened retail demand.
  • Exposure to ABS detracted as the sector underperformed on a total return basis due to the shorter duration nature of the asset class.  Performance in 2019 has been muted for the sector as it has underperformed other asset classes that had experienced greater losses at the end of 2018.  

Current Fund Strategy

Sector Changes: We reduced our exposure to U.S. Treasury securities.  We deployed the sale proceeds primarily into ABS, RMBS and commercial mortgage-backed securities.

Non-U.S. Exposure: Over the quarter, we reduced the overall non-U.S. and emerging market debt exposure within the Fund. We continue to have some concerns of macro headwinds for the sector and idiosyncratic risks; however, valuations in specific countries are attractive and the long-term fundamental outlook remains favorable.  Fundamentals, however, are balanced near term.  In this space, we favor sovereigns in larger capital structures, emphasizing high grade over high yield and hard currency over local market exposure.

Corporate High Quality: There continues to be value in corporate high quality; however, given the recent spread tightening and current valuations we expect this sector to provide coupon-type returns with modest room for spread tightening.  We continue to favor the BBB segment of the sector and from an industry perspective favor banks, REITS, and basic materials.  We are opportunistically repositioning our portfolios into a strong market, selectively selling some hybrids and high beta outperformers, ensuring our positioning continues to reflect our view on the best relative value within the sector.

Corporate High Yield: The corporate high yield market overall screened cheap at the end of 2018 with yields approaching the 8% area and spreads wider than historical averages.  After the most recent strength, we have been reducing names where valuations have run ahead of fundamentals and redeploying into names that have either not participated in the rally or have seen an improvement operationally.  With idiosyncratic risk so high, correct industry and/or credit calls are imperative to outperforming in the space.   Currently, we see select opportunities within the consumer non-cyclical, consumer cyclical, and capital goods industries while being less enamored with energy and basic energy (chemicals and metals & mining).

Securitized Product: Our allocation to the securitized sectors (RMBS and ABS) continues to play an important role.  In addition to a diversified collateral base and attractive valuations relative to many other areas of the fixed income markets, they also offer diversification to the corporate credit allocation within the portfolio.  Our consumer focus within the ABS sector has been beneficial as the U.S. consumer continues to show the ability to lift the U.S. economy.  RMBS benefits from steady income growth, full employment, good underwriting, and investor demand for mortgage credit.


We continue to look for opportunities in all sectors of the bond market, striving to uncover any out-of-favor or undervalued sectors and securities.  We favor spread sectors based on still-attractive valuations and sound fundamentals, and highlight the importance of credit selection and positioning in the current environment.  We believe some of the best total return and yield opportunities in fixed income can be found in spread sectors.  Some of the specific sectors where we see best relative value and opportunities are out-of-index/off-the-run ABS, RMBS, credit-specific high yield and high yield bank loans, investment grade corporates, and emerging markets debt.



Newfleet Asset Management
AdvisorShares Newfleet Multi-Sector Income ETF (MINC) Portfolio Manager


Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Yield is the income return on an investment. This refers to the interest or dividends received from a security and is usually expressed annually as a percentage based on the investment’s cost, its current market value or its face value.

10-Year Treasury Note is a debt obligation issued by the United States government that matures in 10 years. A 10-year Treasury note pays interest at a fixed rate once every six months and pays the face value to the holder at maturity. An advantage of investing in 10-year Treasury notes, and other federal government securities, is that the interest payments are exempt from state and local income tax. However, they are still taxable at the federal level.

The Bloomberg Barclays Capital Aggregate Bond Index measures the performance of the U.S. investment grade bond market. One cannot invest directly in an index.

Fundamentals are the qualitative and quantitative information that contributes to the economic well-being and the subsequent financial valuation of a company, security or currency. Analysts and investors analyze these fundamentals to develop an estimate as to whether the underlying asset is considered a worthwhile investment.

Residential Mortgage-Backed Security is a type of mortgage-backed debt obligation whose cash flows come from residential debt, such as mortgages, home-equity loans and subprime mortgages. A residential mortgage-backed security is comprised of a pool of mortgage loans created by banks and other financial institutions. The cash flows from each of the pooled mortgages is packaged by a special purpose entity into classes and tranches, which then issues securities and can be purchased by investors.

Commercial Mortgage Backed Security is a type of mortgage-backed security that is secured by the loan on a commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders. As with other types of MBS, the increased use of CMBS can be attributable to the rapid rise in real estate prices over the years.

An Asset Backed Security is a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt.

Correlation is a statistical measure of how two securities move in relation to each other.

Coupon is the interest rate stated on a bond when it’s issued. The coupon is typically paid semi-annually.

Spread sectors include all non-Treasury investment grade sectors including federal agency securities, corporate bonds, asset-backed securities, mortgage-backed securities and commercial mortgage-backed securities.

Spread is the difference between the bid and the ask price of a security or asset.

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.”

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’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. Emerging and foreign market investments can be more volatile than U.S. securities and will expose the Fund to adverse changes in foreign economic, political, regulatory and currency exchange rates. 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 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.