CWS: May 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

Performance Review

The stock market continued its impressive rebound during May 2020. Gradually, some states and localities across the U.S. have started to re-open their economies. These moves are only the beginning, but it appears to be the beginning of a trend. Hopefully, by the end of the summer, a good part of the economy will be back to normal.

Still, the U.S. economy has been greatly damaged by the lockdown. Here’s a quick summary of some recent economic reports.

The ISM Manufacturing Index for May was 43.1%. That’s up from an 11-year low for April. Construction spending for April fell by 2.9%.

According to the most recent jobless-claims report, 2,123,000 Americans filed for jobless claims. That’s the eighth-straight improvement to that number.

The durable-goods report showed a drop of 17.2% for April. That’s on top of a decline of 16.6% for March.

The government revised the Q1 GDP growth report downward. The initial report had been for -4.8%. That was revised downward to -5%.

In early May, the Labor Department reported that the U.S. economy shed 20.5 million jobs during April. That’s a staggering loss. The unemployment rate jumped to 14.7%. That’s a level we haven’t seen since the Great Depression.

Despite these terrible numbers, the stock market did well during May. For the month, the S&P 500 gained 4.53%. If we include dividends, then the gain was 4.76%. There’s a very good chance that the first quarter of this year will go down as one of the worst on record. There’s also a good chance that the second quarter will go down as one of the best on record. That’s the kind of year it’s been.

The AdvisorShares Focused Equity ETF (NYSE Arca: CWS) had a very good month for May. The Net Asset Value (NAV) rose by 5.75%. I think there’s a good chance that we can finish 2020 with a profit.

Now let’s look at the some of the stocks that helped drive our big returns in May.

Portfolio Review

Our biggest winner in May was Trex (TREX). This is noteworthy because Trex was one of our biggest winners in April as well.

For Q1, the deck-maker earned 73 cents per share. That easily beat Wall Street’s estimates of 63 cents per share.

Quarterly sales rose 12% to $200 million, and gross margin increased by 620 basis points to 44.8%. For last year’s Q1, Trex made 54 cents per share.

Trex said it expects Q2 sales between $180 million and $190 million, although the company withdrew its full-year guidance. They’ve also stopped share repurchases. I completely understand. Trex said it has “no significant sourcing issues,” and that it’s in good shape to ride out the lockdown.

Over April and May, Trex rallied 50% for us. It’s our #1 performing stock this year. I like this stock a lot.

Middleby’s (MIDD) was another big winner for us in May. The company recently said it made $1.46 per share for its Q1 which was ten cents better than expectations.

It was a tough quarter for Middleby, but they’re hanging in there. The company makes equipment for the food service industry. Interestingly, the company said that restaurants are seeing week-over-week increases in business. I couldn’t help noticing this nugget in the earnings report: “Sales of certain food items, such as hot dogs and other meat products in our core equipment markets, have experienced recent increased demand.” Makes sense.

Middleby is a good example of people expecting the worst, and it didn’t come. For May, Middleby gained 22.4% for us. At one point, this stock was a 60% loser for us this year. It’s rallied back very nicely.

RPM International (RPM) also did well for us in May. The company reported fiscal Q3 earnings of 23 cents per share. That beat estimates by two cents per share. This is for the three months ending on February 29, so it was before the coronavirus become a major business issue.

Previously, RPM said it expected EPS “in the high-teens to low-20-cent range.” RPM then revised that to say it expects to see earnings “at the higher end” of its previous range. They were right on that.

For Q3, adjusted EBIT rose 30.4% to $60.5 million, and net sales increased by 2.9% to $1.17 billion. Due to the coronavirus, RPM has decided to suspend its guidance. They’re also canceling any share buybacks. In a tough time like this, that’s the right thing to do.

On the bright side, RPM made it clear that it’s “well positioned to weather the pandemic due to strong balance sheet, significant liquidity, maintenance nature of products, potential for DIY uptick, and margin improvements from restructuring.” At the end of the quarter, RPM has a position of cash and revolving credit of $1.14 billion. For May, RPM gained 12.6% for us.

Our worst performer in May was Eagle Bancorp (EGBN). This bank has a habit of doing the opposite of everyone else is doing. In April, Eagle reported Q1 earnings of $23.1 million. That works out to 70 cents per share. That’s below the estimate of 92 cents per share. However, the bank had legal fees of $4.6 million last quarter. That comes to about 14 cents per share. Eagle now has total assets of $10.01 billion.

For the quarter, Eagle had a net interest margin of 3.49%, and the efficiency ratio was 43.83%. Both are pretty good. I think our thesis holds that this is a good bank that’s been held back by legal fees and old issues involving people no longer with the bank. Once that matter clears up, EGBN should get a much better valuation. For May, Eagle lost 7.75%.

Portfolio Attribution

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

Company Symbol 4/30/2020
Trex TREX $95.22 $120.12 26.15%
Middleby MIDD $55.63 $68.10 22.42%
RPM International RPM $66.41 $74.78 12.60%
FactSet FDS $275.00 $307.51 11.82%
Sherwin-Williams SHW $536.37 $593.85 10.72%
Moody’s MCO $243.90 $267.41 9.64%
Intercontinental Exch ICE $89.45 $97.25 8.72%
Disney DIS $108.15 $117.30 8.46%
Ansys ANSS $261.83 $283.00 8.09%
Church & Dwight CHD $69.99 $75.07 7.26%
Ross Stores ROST $91.36 $96.96 6.13%
Cerner CERN $69.39 $72.90 5.06%
Stryker SYK $186.43 $195.73 4.99%
Broadridge Fin Solutions BR $116.00 $121.10 4.40%
Hormel Foods HRL $46.85 $48.83 4.23%
Check Point Software CHKP $105.74 $109.67 3.72%
Fiserv FISV $103.06 $106.77 3.60%
Hershey HSY $132.43 $135.68 2.45%
Danaher DHR $163.46 $166.61 1.93%
Stepan SCL $95.40 $97.16 1.84%
AFLAC AFL $37.24 $36.47 -2.07%
Becton, Dickinson BDX $252.53 $246.93 -2.22%
Silgan SLGN $34.50 $33.44 -3.07%
Globe Life GL $82.34 $77.02 -6.46%
Eagle Bancorp EGBN $35.08 $32.36 -7.75%

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 %

As of 05.31.2020.

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 0.75% during May 2020. After the Fund’s May performance, the CWS fulcrum fee will adjust to 0.65% in June 2020.



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



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 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.