CWS: July 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

July was another good month for stocks. This was the fourth monthly gain in a row for the S&P 500. For the month, the index gained 5.51%. Adding in dividends, the index was up 5.64% for the month.

As good as that was, our AdvisorShares Focused Equity ETF (NYSE Arca: CWS) did even better. The traded shares gained 9.75% during July while the Net Asset Value (NAV) grew by 8.48% – impressive performance.

We were helped by strong earnings reports for the second-quarter earnings season. Earnings for the first quarter were only partially impacted by the economic lockdown. The second quarter, by contrast, felt the full force of the economic freeze. Many large corporations saw their sales and earnings plunge during Q2. Fortunately, many of our stocks help up relatively well, and that help the fund

Portfolio Review

Let’s take a look at some the stocks that helped power our gains during the July. At the top of the list is Church & Dwight (CHD).

On July 31, the company reported very good earnings. For its fiscal Q2, the household-products company made 77 cents per share. That beat the Street by 14 cents per share. Quarterly sales grew by 10.6% to $1,194.3 million.

The company also raised its expectations for the rest of this year. C&D now expects full-year sales growth of 9% to 10%. The initial outlook had been for 6.5% growth. The company also expects EPS to grow by 13%. That’s up from the initial range of 7% to 9%.

The CEO said this was an “extraordinarily strong quarter,” and I have to agree. Share of Church & Dwight gain an amazing 24% during July.

Another big winner for us in July was Silgan Holdings (SLGN). This stock is turning into a nice winner for us. On July 22, the metal-container firm reported earnings of 85 cents per share for the second quarter.

That beat expectations of 65 cents per share. In fact, this was the strongest quarter in Silgan’s history. Net sales were up by 7.6% to $1.18 billion.

Like Church & Dwight, Silgan also did something very rare these days. The company increased guidance. Silgan now sees full-year earnings of $2.70 to $2.85 per share. Silgan also increased its free-cash-flow estimate for this year from $275 million to $330 million.

At the current share price, that works out to a free-cash-flow yield of nearly 8.5%.

Shares of Silgan gained more than 18% for us in July. Silgan is one of the leading makers of metal containers in the world, and in North America, it holds the #1 position in metal food containers

Coming in just behind Silgan was Becton, Dickinson (BDX). The company had very good news in July when the FDA gave emergency approval for its rapid antigen test for COVID-19.

Becton also got a massive order for 177 million syringes and needles for COVID-19 vaccination programs. Becton said it will start distributing the devices by the end of the year. Shares of BDX rallied more than 17% for us during July.

I was pleased to see Check Point Software (CHKP) do so well for us in July. On July 22, the Israeli cyber-security firm said that its Q2 earnings rose by 15% to $1.58 per share. That beat expectations of $1.44 per share.

The details were pretty good. Quarterly revenue rose 4% to $506 million. Wall Street had been expecting $488 million. Cash flow from operations increased by 8% to $252 million. During Q2, Check Point bought back 3.1 million shares for a total cost of $325 million. The company continues to have a solid balance sheet, which is something I like to see.

Interestingly, Check Point said that cyber-attacks have increased during the pandemic. In May, the company documented 192,000 coronavirus-related cyber-attacks a week. I’m very impressed with Check Point’s business performance and this was a good quarter for them. The stock rallied for a 16.7% gain in July.

Not all of our stocks were big winners during July. Our biggest loser was Eagle Bancorp (EGBN). This bank is often our biggest winner or loser each month. Shares of Eagle fell 8% in July.

I was particularly curious to hear what Eagle had to say for its earnings. Our thesis is that the bank is operating just fine, but it’s been weighed down by unresolved legal issues.

The results confirmed our view. For Q2, Eagle made 90 cents per share which beat estimates of 74 cents per share. The bank now has $9.8 billion in assets. That’s up 13% over the last year. Operationally Eagle Bank is doing just fine.

The bank said that legal, accounting and professional fees increased by $1.2 million compared with the same quarter one year ago. That’s not so bad. It works out to about three cents per share. Eagle is going for a bargain, but you can expect more volatility with this stock. If we’re right, and the evidence leans in our direction, then we can expect big gains from Eagle in the months ahead.

Portfolio Attribution

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

Company Symbol 6/30/2020
731/2020
Gain/Loss
Church & Dwight CHD $77.30 $96.33 24.62%
Silgan SLGN $32.39 $38.25 18.09%
Becton, Dickinson BDX $239.27 $281.34 17.58%
Check Point Software CHKP $107.43 $125.35 16.68%
Danaher DHR $176.83 $203.80 15.25%
Stepan SCL $97.10 $109.20 12.46%
Hershey HSY $129.62 $145.41 12.18%
Sherwin-Williams SHW $577.85 $647.92 12.13%
RPM International RPM $75.06 $81.59 8.70%
Stryker SYK $180.19 $193.30 7.28%
Globe Life GL $74.23 $79.60 7.23%
Trex TREX $130.07 $139.33 7.12%
Ansys ANSS $291.73 $310.60 6.47%
Broadridge Fin Solutions BR $126.19 $134.34 6.46%
Intercontinental Exchange ICE $91.60 $96.78 5.66%
FactSet FDS $328.47 $346.30 5.43%
Hormel Foods HRL $48.27 $50.86 5.37%
Middleby MIDD $78.94 $83.06 5.22%
Ross Stores ROST $85.24 $89.67 5.20%
Disney DIS $111.51 $116.94 4.87%
Moody’s MCO $274.73 $281.30 2.39%
Fiserv FISV $97.62 $99.79 2.22%
Cerner CERN $68.55 $69.45 1.31%
AFLAC AFL $36.03 $35.57 -1.28%
Eagle Bancorp EGBN $32.75 $30.08 -8.15%

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 5.87%
CHD CHURCH & DWIGHT CO INC 5.28%
DHR DANAHER CORP 5.14%
FDS FACTSET RESEARCH SYSTEMS INC 4.96%
SLGN SILGAN HOLDINGS INC 4.73%
ANSS ANSYS INC 4.63%
MCO MOODY’S CORP 4.53%
HRL HORMEL FOODS CORP 4.33%
CHKP CHECK POINT SOFTWARE TECH 4.31%
SHW SHERWIN-WILLIAMS CO/THE 4.29%

As of 7.31.2020.

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 0.65% during July 2020. After the Fund’s June performance, the CWS fulcrum fee will adjust to 0.71% in August 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.


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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.