DBLV: March 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/dblv.


In March, the AdvisorShares DoubleLine Value Equity ETF (DBLV) posted a return of -15.77% finishing ahead of its benchmark, the Russell 1000 Value Index, by 1.32%  

The severe market correction in March was one of the steepest and quickest in history and was followed by one of the sharpest rallies in memory. During the month, the S&P 500 declined 28% from peak to trough over a 2 week period and rallied 17.5% within 3 days. COVID-19 has had a crippling effect on global economies, as the damage has been deeper and more far-reaching than many people had expected, with spillover effects into businesses not directly impacted by the virus. By the end of the month, worldwide cases exceeded 820,000, while fatalities reached 40,600. The U.S. surpassed China as having the most COVID-19 cases in the world. Cases in the U.S. reached 175,000 while deaths were 3,400. New York became the epicenter in the U.S. with over 75,000 cases. Italy recorded the highest death toll on record at about 12,400, while Spain had the second highest mortality rate. Currently, the infection rate appears to be accelerating in the developed countries, sparking fears that the pandemic will continue to expand and persist much longer.  

The oil market has been a major casualty of COVID-19. As economic activity slowed in China and elsewhere, demand for energy fell, putting further pressure on Saudi Arabia to pursue additional production cuts with OPEC members and Russia in order to stabilize oil prices. After Russia refused to join in the production cuts, Saudi Arabia initiated a full blown oil price war, slashing its official selling prices (OSP) and threatening to flood the market with over 2 million barrels of additional oil production per day. This caused the deepest one day drop in oil prices since the 1991 Gulf War. The supply additions exacerbate an already weak oil market, sending Brent oil and WTI oil spot prices down below $20/barrel and $15/barrel, respectively, during the month. While we believe Saudi Arabia will not be able to sustain the oil price war indefinitely, oil prices will likely remain weak in the near-term given the economic fallout from COVID-19. At these oil prices, the U.S. oil industry will struggle to generate an adequate return. The potential of widespread defaults and substantial job losses in the energy sector has added to the already rising economic uncertainty and has exacerbated the spike in stock market volatility. 

In the U.S., businesses have also suffered extensively from lockdowns in California, New York and other states in an effort to slow the spread of the virus. As most people stayed at home, practicing social distancing and restricting their daily activities, demand for goods and services fell precipitously, straining many retail and service businesses. Goldman Sachs forecasts GDP to fall by 24% in 2Q 2020, eclipsing the 10% drop in 1958, which was the prior record, and estimates unemployment will rise to 15% by the middle of the year. In fact, initial jobless claims surged from the low 200,000s only a month ago to a record 6.6 million in March, smashing the prior one-week record of 695,000 in October 1982. The sudden plunge in demand is forcing countless businesses to close or curtail their operations significantly, resulting in massive lay-offs and job losses. This is also rippling through many sectors that were not directly exposed to the COVID-19 pandemic, producing tremendous stress throughout the financial system. Given liquidity concerns, some large corporations have drawn down their credit lines to ensure that they have adequate funding to operate through a downturn. These severe conditions, brought on by an unprecedented temporary shutdown of major parts of the economy due to the pandemic, are likely transitory. As novel solutions are produced to combat or contain this virus and a meaningful part of the population develops immunity to the virus, we would expect the fears associated with the pandemic to subside and people to return to some level of normality in their daily activities, driving a rebound in the economy and the market.

That said, the current uncertainty regarding the magnitude and duration of the economic damage has led to a panic in financial markets, triggering a massive run on the financial system. The widespread asset liquidations caused parts of the financial system to freeze and stop functioning properly. Credit spreads widened across all markets as liquidity dried up. The Fed, along with Treasury, has acted quickly to prevent a liquidity crisis, using their entire 2008 global financial crisis playbook within weeks. To further support the financial system, the Fed moved to unlimited Quantitative Easing (“QE”) and expanded its facilities to include other assets such as corporate investment grade bonds and municipal bonds. While the Fed’s monetary tools have been effective in thawing the financial system and ensuring that funds are flowing smoothly through the critical parts of the system, the Fed is much less effective in stimulating demand, which has been devastated by changes in consumer behavior and activity due to COVID-19. With monetary policies approaching some limits, the government has leaned more heavily on its fiscal tools to counter the demand headwinds from the virus. Its fiscal response has also been swift, with Congress and President Trump approving a record $2 trillion fiscal package, which is closer to $4 trillion when tax deferments and leverage provided by the Fed are factored into the program, doing so in less than two weeks. The fiscal package provides needed support to businesses, preserving available jobs for when the lockdowns are lifted and the economy rebounds, and enables consumers to cover their basic expenses, reducing the risks of mass defaults in consumer credit that can have greater ramifications on overall financial system. Given the extent of the expected drop in GDP, the current fiscal package will likely be insufficient. Recognizing this, the government has started work on the next fiscal program which is expected to be focus on infrastructure investments. Overall these programs alleviate some of the stresses that threaten to topple the financial system.  However, these government programs also have unintended consequences. A moratorium on evictions and mortgage forbearance, intended to help consumers, are potentially harmful to real estate owners and mortgage issuers and servicers.  Meanwhile, there are potentially long-term consequences associated with a record increase in government debt and substantial rise in the money supply from unlimited QE. The announced programs to date are expected to lead to record fiscal deficits, resulting in enormous debt increases. Furthermore, the Fed’s balance has increased to about $5.3B, a new record, as a result of QE and other programs, and could more than double under the current funding programs.

Late in the month, the market also experienced one of the strongest rallies in history. However, even with the market bounce, the S&P remained about 23.7% below its peak at month end. Market volatility reached extreme levels, last seen during the 2008 global financial crisis. Within the month, the market had one of the highest one day increase, as well as one of the highest one day decrease. During this period of heightened volatility driven by fears of a severe recession and exacerbated by a liquidity crunch, growth stocks and less-economically sensitive stocks with relatively stable earnings outperformed more cyclically exposed value stocks again. In March, the S&P 500 returned -12.35% versus the Russell 1000 Value Index at -17.09% and the Russell 1000 Growth Index at -9.84%. We expect market volatility to remain high so long as the uncertainty over the length of the downturn and the full economic damage persist. That said, we believe the market pullback has made valuations more appealing, creating some attractive opportunities for long-term investors. We also continue to believe that the fatality rate of COVID-19 will likely prove to be materially lower and the overall impact of the virus will likely be more modest than feared. Nonetheless, there are reasons to be cautious as systemic risks remain elevated, given that COVID-19 has yet to be contained, and recognizing that the financial system is still under stress and remains vulnerable to a prolonged, severe recession.

In terms of the portfolio’s sector attribution, monthly performance for DBLV was driven by negative contributions from communication services, consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, real estate, and utilities. On a relative basis, DBLV was helped by communication services, consumer discretionary, financials, health care, information technology, materials, real estate, and utilities offset by adverse results within consumer staples, energy, and industrials. Cash had a positive impact on relative performance in a declining market.

As of 03.31.2020.


Top positive contributors to March performance were American Tower (AMT), Dollar General (DG), and Microsoft (MSFT):

  • AMT (real estate), one of the largest real estate investment trusts (REITs), is a leading independent owner, operator and developer of wireless-communications-related real estate and the holder of a global portfolio of more than 170,000 cell tower sites. AMT has a solid franchise with high recurring revenue, long term contracts, high entry barriers and solid free cash flow generation. Moreover, the company continues to benefit from higher levels of wireless traffic, which the anticipated shift toward fifth generation cellular networks (i.e., 5G) will accelerate. During March, AMT outperformed other REITs, as COVID-19 has led to an increase in cell phone and wireless data usage, benefitting the wireless tower REITs. In contrast, senior housing REITs sold-off on concerns of COVID-19 spreading through their properties, while retail and hotels REITS were impacted by store closures and cancellation of large events due to COVID-19. Office property REITs fell due to concerns of rent non-payment by commercial tenants whose businesses were harmed by the virus. Meanwhile, apartment REITs were weak as widespread lay-offs and job losses, along with a moratorium on evictions on select properties and in some municipalities, drove concerns that tenants would stop paying rents starting in April.
  • DG (consumer discretionary) is the largest operator of small-format, discount stores in the U.S. As the COVID-19 pandemic evolved and shelter-in-place recommendations were rolled out across the U.S., DG was one of the many direct beneficiaries of consumers stocking up on groceries and other household essentials. Furthermore, DG stock outperformed other discretionary retailers as it became evident that the U.S. is likely in the midst of a recession. As a discount retailer that caters to lower income consumers, DG’s business is relatively resilient during recessionary times.
  • MSFT (information technology) is a leading supplier of software products and related services, hardware devices and other technology solutions. The company has transitioned toward its fast-growing cloud portfolio, which includes Office 365, Azure, LinkedIn and Dynamics 365, which will increasingly drive the company’s growth and profitability going forward. Microsoft stock outperformed in March, as the stock benefited from widespread investor flight to quality during these highly uncertain times. Such flight is justified, given the company’s extremely strong business model, balance sheet, cash flow and competitive positioning within key cloud services (e.g., Azure, Teams, et. al.); these services are experiencing increased demand as citizens across the developed world are asked to shelter-in-place and are forced to rely upon web-based modalities rather than bricks-and-mortar operations which are shut down presently. While some of the current cloud usage is temporarily elevated and likely will decline once individuals can return to offices and other workplaces, current exigencies have likely accelerated the adoption of cloud-based services permanently. We continue to view the stock as a core, long-term holding, as well as a name to hold during this period of elevated volatility.

Top detractors from monthly performance Us Foods Holding (USFD), Boeing (BA), and Flex (FLEX):

  • USFD (consumer staples) is the nation’s second largest distributor of food products to restaurants, healthcare, and government facilities. Like other food distributors, USFD’s most important customer segment is restaurants, particularly independent restaurants and smaller, regional chains. As of the end of March, dine-in options at these restaurants were prohibited in states comprising the vast majority of the US population. USFD’s highly variable cost structure and low working capital requirements provide it with some flexibility to manage its way through this disruption, but the pain is largely unavoidable when the majority of your customers are suddenly ordered to close their doors. Once restaurant restrictions ease, we expect people to return to dining out again, driving a recovery in USFD’s business. That said, the pace of recovery will depend on how quickly employment snaps back, as well as the effectiveness of government efforts to support restaurants financially during the mandated closures.
  • BA (industrials) is a dominant player in the commercial airplane manufacturing duopoly. BA’s negative performance for the month of March was driven by some airline customers deferring or cancelling orders in response to lower demand spurred by the Covid-19 pandemic, along with growing concerns about the company’s leverage/liquidity position. Given a record decline in global air traffic due to contagion fears and government travel restrictions, airlines sought to remove significant capacity from the global commercial aviation industry. Meanwhile, the grounding of the 737 Max for almost one year as BA awaited FAA approval prevented BA from making deliveries and converting its bloated inventory into cash, thus constraining its ability to raise liquidity and to delever its balance sheet. BA stock fell further when news surfaced that it was in discussion with the government about a bailout package, driving up concerns about its leverage/liquidity position. Subsequently, BA stock recovered some after the company cut production further and indicated that a bailout might not be needed as it had several option to shore up its financials without diluting existing stockholders. We believe that BA has a strong competitive position, is important to the U.S. economy and will be able to monetize its inventories once it receives FAA approval and the economy begins to improve.
  • FLEX (information technology) is a leading outsourced manufacturer for a wide variety of companies in the technology, consumer discretionary, industrials, healthcare and other industry verticals. The firm boasts more advanced capabilities than most of its traditional electronics manufacturing services (EMS) peers. Before the pandemic hit, Flex was in the midst of a multi-year transition to higher-margin, longer-lived business activity to enhance top-line growth, profitability and the predictability of returns. While the company has a geographically diversified manufacturing footprint, the global nature of the pandemic has raised near-term questions and concerns over the ability of the company to manage through the crisis. This overhang, along with the company’s unsurprising withdrawal of guidance, adversely impacted the stock’s price performance during March. During its recent investor day, management noted that 90%+ of its China-based labor is back to work and suggested that it expects to restart manufacturing in other geographies at a rapid clip when it becomes possible. We remain constructive on the long-term prospects for the company and the expected returns of its stock.

During the month, we took advantage of much lower stock market prices to upgrade the quality of the DBLV portfolio across a variety of sectors and sub-industries, introducing Ametek (AME), General Electric (GE), Kbr (KBR), Lockheed Martin (LMT), Microchip Technology (MCHP), Mondelez International (MDLZ), Prudential Financial (PRU), Taiwan Semiconductor Manufacturing (TSM), Valero Energy (VLO), Walmart (WMT) as new holdings. We added to our positions in Bank Of America (BAC), Chubb (CB), Comcast (CMCSA), Facebook (FB), Fidelity National Information Services (FIS), Flex (FLEX), Goldman Sachs Group (GS), Intercontinental Exchange (ICE), JPMorgan Chase (JPM), KLA Corporation (KLAC), Medtronic (MDT), Motorola Solutions (MSI), Northrop Grumman (NOC), Parker-Hannifin (PH), PNC Financial Services Group (PNC), and Willis Towers Watson (WLTW). We reduced our position in Alibaba Group (BABA), Boeing (BA), Bank Of America (BAC), Comcast (CMCSA), Fidelity National Information Services (FIS), KLA Corporation (KLAC), Philip Morris International (PM), PNC Financial Services Group (PNC), TJX Companies (TJX), Walmart (WMT), and Xcel Energy (XEL). We eliminated our holdings in American Electric Power (AEP), Concho Resources (CXO), Fedex (FDX), Fortive (FTV), General Motors (GM), Halliburton (HAL), Motorola Solutions (MSI), Northrop Grumman (NOC), Pioneer Natural Resources (PXD), and Texas Instruments (TXN).  

Top Holdings

As of 03.31.2020. 

Active weight refers to the difference in allocation of an individual security or portfolio segment between a portfolio and its benchmark. For example, if a portfolio allocates 15% within the energy sector, and the benchmark’s allocation in energy is 10%, then the active weight of the energy segment of the portfolio is +5%. Active weight can also be referred to as relative weight.


Relative to the Russell 1000 Value Index, DBLV is overweight consumer discretionary, health care, industrials, information technology, and communication services and underweight consumer staples, energy, financials, materials, real estate, and utilities. The portfolio holdings by absolute and relative sector weights are found in the accompanying charts:

As of 03.31.2020.

The DBLV portfolio’s sector exposures primarily reflect the DoubleLine Equities team’s bottom-up investment process, which places an emphasis on individual stock selection. However, the macroeconomic views of DoubleLine Capital L.P. do inform secondarily these sector weightings.


While constructive on the long-term outlook for the U.S. equity market, we remain cautious in the near-term, because of the deteriorating economic conditions, coupled with a teetering financial system caused by COVID-19. We also see risks associated with a sizable ramp in fiscal deficit spending to counteract demand headwinds triggered by COVID-19, ballooning U.S. debt balances to fund the deficit, and the economy’s continued dependence on Fed support and corporate leveraging. Given the expected plunge in economic activity due to actions taken to restrain the spread of the virus, revenue and earnings for many S&P companies are expected to decline in Q2 2020. That said, the increased uncertainty also creates opportunities to buy at attractive valuations good franchises with financial strength that can weather through the current downturn.

We believe the fundamental value strategy of DBLV is well suited to navigate through the current environment of evolving risks and opportunities. We continue to be positioned with a balanced exposure to low-multiple value names, and to high quality, less economically sensitive stocks trading at reasonable prices. Importantly, we continue to maintain a longer-term orientation. At month’s end, the price-to-earnings multiple on 2020 consensus estimates for DBLV was 13.9x, versus the Russell 1000 Value Index at 13.0x, and the S&P 500 at 16.7x.

We thank you for your continued interest in DBLV.


Emidio Checcone
DoubleLine Capital
AdvisorShares DoubleLine Value Equity ETF (DBLV) Co-Portfolio Manager


Brian Ear
DoubleLine Capital
AdvisorShares DoubleLine Value Equity ETF (DBLV) Co-Portfolio Manager


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. Investing in mid and small capitalization companies may be riskier and more volatile than large cap companies. Because it intends to invest in value stocks, the Fund could suffer losses or produce poor results relative to other funds, even in a rising market, if the Sub-Advisor’s assessment of a company’s value or prospects for exceeding earnings expectations or market conditions is incorrect. Other Fund risks include market risk, equity risk, large cap risk, liquidity risk and trading 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 change.

The views in this commentary are those of the portfolio manager and many not reflect his views on the date this material is distributed or any time thereafter. These views are intended to assist shareholders in understanding their investments and do not constitute investment advice.