CWS: August 2020 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/cws.

Performance Review

August was another outstanding month for the stock market. In fact, it was the best August for the S&P 500 since 1984. This continues the very impressive rally we’ve experienced since March 23. Since the low, the S&P 500 has gained more than 50%.

What’s been remarkable is the stock market’s ability to rally in the face of unpleasant news. The economy is still in a very rough spot, although it is slowly getting back to normal. On top of that, the country has experienced a great deal of domestic unrest. Of course, we’re also in the final stages of a very long election campaign. None of these has slowed the market down.

August was also the month in which the S&P 500 finally made a new all-time high. This means the market made back everything it lost during the bear market from earlier this year. In March, who would have thought that the market would rebound so strongly?

I’m happy to report that the AdvisorShares Focused Equity ETF (NYSE Arca: CWS) continues to perform well. During August, the Net Asset Value (NAV) grew by 3.11%. The NAV also broke $40 per share for the first time. We started at $25 per share less than four years ago. It’s been a very good run.

Portfolio Review

Let’s take a look at some the stocks that helped power our gains during the month.

At the top of the list is Middleby (MIDD). In August, the company reported earnings of 55 cents per share. That was well above estimates for 41 cents per share. Net sales fell 38%. I was very impressed by this report. CEO Tim Fitzgerald said, “Our solid financial performance was a result of successfully reducing our cost structure and maintaining strong levels of profitability across all three of our business segments, despite revenue decreases.”

It’s especially gratifying to see such good results from Middleby because the stock suffered so much earlier this year. I expect to see more improvement from Middleby. Fitzgerald also said, “As we progressed through the month of July, business activity across all of our foodservice segments demonstrated continual improvement. In particular, we have seen strong demand from quick-serve and pizza restaurants, as well as in the healthcare, convenience stores, and retail categories.”

The shares rallied nearly 18% for us in August. Middleby finished the month of August 135% above its March low. This is a good example of why we follow a buy-and-hold strategy.

Disney (DIS) was another big winner for us in August. It was pretty much assumed that the Mouse House was going to report a big loss for Q2. Instead, Disney surprised nearly everyone by reporting a small profit. If I went into a lab and tried to design a company that could be more adversely impacted by the lockdown, it would be hard to top what Disney actually is. The company is movies, parks and sports. On top of that, it has a cruise line.

Still, Disney managed to pull through during Q2. On August 4, Disney said it made a profit of eight cents per share for Q2. Wall Street had been expecting a loss of 64 cents per share. That’s a big beat. The weak spot was revenue. For the quarter, Disney had $11.78 billion in revenue. That was below estimates for $12.37 billion. The only parts of Disney’s business that saw an increase in revenue were the direct-to-consumer and international businesses sectors. The big success story was Disney’s streaming service. I guess it helps that everyone is stuck at home! If you add up all the subscription services, Disney now has over 100 million paid subscribers. Disney+ is up to 57.4 million. Revenue for their Parks, Experiences and Products business was down a staggering 85%. Disney’s Media Networks was only down 2%. As a result of the lockdown, Disney took a $3.5 billion hit to its operating income.

Shares of Disney added over 12% during August. I expect to see more good news from Disney once the economy gets back to normal.

On July 30, Intercontinental Exchange (ICE) reported Q2 earnings of $1.07 per share. That’s a 14% increase over last year. Revenues rose 8% to $1.4 billion. ICE’s operating margin is at 59%. Wall Street had been expecting earnings of $1.04 per share. So far this year, ICE has bought back $1.1 billion of its stock and paid out $330 million in dividends. For Q3, ICE expects data revenues of $575 million to $580 million. ICE rallied nearly 10% for us in August.

Unfortunately, not everything was up for us in August.

One weak spot was Becton, Dickinson (BDX). On August 6, the company said it made $2.20 per share for its fiscal Q3. Even though that’s a drop of 28%, it was still well above Wall Street’s consensus of $2.04 per share. Becton also said it expects earnings for this year to come in between $9.80 and $10.00 per share. Since Becton has already made $7.41 for the first nine months of this fiscal year, the new range implies earnings of $2.39 to $2.59 per share for the current quarter. Wall Street had been expecting $3.08 per share. Frankly, I’m not pleased with this guidance. Maybe they’re just being conservative. Becton had a rough month for August as the shares lost over 13%. I’m not ready to throw in the towel just yet, but I want to see improvement here.

Portfolio Attribution

Here’s how all 25 positions performed during the month of August.

Company Symbol 7/31/2020
8/31/2020
Gain/Loss
Middleby MIDD $83.06 $97.90 17.87%
Disney DIS $116.94 $131.87 12.77%
Intercontinental Exch ICE $96.78 $106.23 9.76%
Ansys ANSS $310.60 $339.01 9.15%
Trex TREX $139.33 $149.49 7.29%
Cerner CERN $69.45 $73.37 5.64%
Stepan SCL $109.20 $115.29 5.58%
Moody’s MCO $281.30 $294.64 4.74%
RPM International RPM $81.59 $84.77 3.90%
Globe Life GL $79.60 $82.48 3.62%
Sherwin-Williams SHW $647.92 $671.05 3.57%
Stryker SYK $193.30 $198.16 2.51%
Broadridge Fin Sol BR $134.34 $137.40 2.28%
Hershey HSY $145.41 $148.64 2.22%
AFLAC AFL $35.57 $36.32 2.11%
Ross Stores ROST $89.67 $91.08 1.57%
Danaher DHR $203.80 $206.47 1.31%
FactSet FDS $346.30 $350.40 1.18%
Check Point Software CHKP $125.35 $126.26 0.73%
Hormel Foods HRL $50.86 $50.98 0.24%
Fiserv FISV $99.79 $99.58 -0.21%
Silgan SLGN $38.25 $38.06 -0.50%
Church & Dwight CHD $96.33 $95.83 -0.52%
Eagle Bancorp EGBN $30.08 $28.78 -4.32%
Becton, Dickinson BDX $281.34 $242.77 -13.71%

Source: Yahoo Finance

Portfolio Changes

The philosophy of the AdvisorShares Focused Equity ETF is to make portfolio changes just once a year. At the end of the year, we add five stocks and delete five. We made our changes in December, so there were no changes to make this month.

Top Holdings

Ticker Security Description Portfolio Weight %
TREX TREX COMPANY INC 6.08% 
CHD CHURCH & DWIGHT CO INC 5.01%
DHR DANAHER CORP 5.00%
FDS FACTSET RESEARCH SYSTEMS INC 4.88%
ANSS ANSYS INC 4.85%
MCO MOODY’S CORP 4.58%
SLGN SILGAN HOLDINGS INC 4.56%
SHW SHERWIN-WILLIAMS CO/THE 4.32%
SCL STEPAN CO 4.32%
ICE INTERCONTINENTAL EXCHANGE IN 4.23%

As of 8.31.2020.

Management Fee

In a first for the ETF industry, the portfolio manager of CWS has “skin in the game.” The manager’s compensation is directly tied to portfolio’s performance. Using the trailing 12-month returns of CWS vs. its S&P 500 Index benchmark, stronger outperformance is rewarded with a larger management fee while weaker underperformance is penalized with a smaller management fee. The CWS fulcrum fee was 0.71% during August 2020. After the Fund’s August performance, the CWS fulcrum fee will adjust to 0.77% in September 2020.

 

Respectfully,

Eddy Elfenbein
Crossing Wall Street
AdvisorShares Focused Equity ETF (CWS) Portfolio Manager

 

Past Manager Commentary

Definitions:

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. One cannot invest directly in an index.

The ISM Manufacturing Index, which used to be called Purchasing Manager’s Index (PMI), measures manufacturing activity based on a monthly survey, conducted by Institute for Supply Management (ISM), of purchasing managers at more than 300 manufacturing firms.


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 prices of equity securities rise and fall daily. These price movements may result from factors affecting individual issuers, industries or the stock market as a whole. Shares of the Fund may trade above or below their net asset value (“NAV”). The trading price of the Fund’s shares may deviate significantly from their NAV during periods of market volatility. There can be no assurance that an active trading market for the Fund’s shares will develop or be maintained. In addition, equity markets tend to move in cycles which may cause stock prices to fall over short or extended periods of time. Other Fund risks include market risk, liquidity risk, large cap, mid cap, and small cap risk. Please see prospectus for details regarding risk.

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.