DBLV: 1st Quarter 2021 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.

Market Review

In the first quarter of 2021, U.S. equity markets continued their ascent to new highs as the rapid rollout of the vaccine facilitated an increase in economic activity and a more optimistic corporate earnings outlook. The recent rise in the market was primarily fueled by a strong rally in value stocks, supporting our previously-articulated view that the historically-wide valuation discount of value stocks relative to growth stocks (i.e., the value spread) would prove unsustainable, especially given the expected improvement in value stock fundamentals in an economic recovery. During the quarter, the Russell 1000 Value Index returned 11.3% while the Russell 1000 Growth Index returned 0.9% and the S&P 500 gained 6.2%. The AdvisorShares DoubleLine Value Equity ETF (DLBV) returned 11.5%, outperforming its benchmark, the Russell 1000 Value Index, by 20 bps.

Even with the recent move, the value spread remains very elevated due to the extended duration of value stock underperformance, which goes back to 2007, across a variety of valuation measures (see table below). We are likely still in the early innings of this rotation into value stocks. History might serve as a useful guide in this regard: value stocks have led the market coming out of each of the 14 recessions since 1929, with such outperformance lasting more than one year, more often than not. Considering the severe underperformance by value since 2007, the value rotation could prove to be more significant in magnitude and duration during this economic cycle.

   Source: Factset; DoubleLine

   P/B = price to book value ratio
   P/S = price to sales ratio
   P/E NTM = price to earnings ratio based on estimated earnings for the next 12 months
   Trailing P/E = price to earnings ratio based on the actual earnings for the last 12 months
   EV/EBITDA =  enterprise value to earnings before interest, taxes, depreciation & amortization ratio
   EV/OCF =  enterprise value to operating cash flow ratio
   EV/FCF = enterprise value to free cash flow ratio
   EV/OCF (-D&A) =  enterprise value to operating cash flow ratio less depreciation and amortization ratio

It is important to understand that value investing—purchasing securities of companies at a discount to their intrinsic value—continues to work, but has been masked for the last several years by ever-rising multiples among growth stocks and continually declining multiples for value stocks. In effect, the average stock market investor has paid a higher and higher premium for exposure to the former, while demanding a wider and wider discount to invest in the latter. As we detailed in a recently-published white paper (“Value Investing is Dead? No, Long Live Value!”), the reasons given for the ever widening value spread, resulting from these opposing moves in valuation multiples, do not appear to hold water and probably constitute fallacious “new era” thinking.

Based on our analysis, this valuation differential cannot be explained by faulty valuation metrics, since problematic book value is not emphasized outside of the academic community. Nor does it appear to be a function of our digitizing economy and rise of high-growth, high-multiple technology companies. Indeed, the relative profitability of growth stocks versus value stocks, as measured by metrics such as operating profit margin or returns on assets, has not deviated materially from historical averages. Interest rates also do not appear to be a robust explanatory factor, as most studies have concluded that interest rates are not a statistically significant factor and, where significance was found, they are at best a weak driver of the value spread. All of this suggests that the persistent widening of the value spread for more than a decade now does not appear to be based upon any deteriorating fundamentals impacting value stocks, nor due to any cessation in the underlying effectiveness of value investing as a strategy.

We recognize that in 2020 earnings for value stocks were hit much harder by the pandemic. Earnings for companies within the Russell 1000 Value Index fell by about 27%, compared to a modest increase of nearly 1% for those firms in the Russell 1000 Growth Index. However, with earnings for many cyclical value companies improving in the fourth quarter of 2020 and expected to rebound sharply in 2021, the brunt of the drop in earnings seems to be driven more by cyclical headwinds rather than from a more permanent impairment in business fundamentals for value companies. Moreover, the anticipated economic recovery should usher in higher earnings for value stocks than growth stocks during this year and next. In 2021, companies within the Russell 1000 Value Index are expected to grow earnings by 32% year-over-year (yoy), on average, compared to 20% yoy growth for companies in the Russell 1000 Growth Index. In 2022, Russell 1000 Value earnings are expected to surpass pre-pandemic levels, and companies in the value index are expected to again outgrow their growth stock counterparts—which would make value stocks the new growth stocks during this reflationary period.

Given this glaring disconnect between the historically-wide valuation spread and the rapidly improving underlying fundamentals of value stocks, we would expect value shares to rerate relative to growth stocks. Combined with attractive near-term earnings growth expectations, such a rerating should lead to continued relative price outperformance for value over growth. As we have counseled previously, investors should be positioned within equities with adequate exposure to value in order to profit from this sustained rotation into value names.

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Our positioning is based upon our cautiously constructive view on the ongoing economic recovery made possible by the advent of COVID-19 vaccines and related treatment improvements, which have reduced the case counts, hospitalizations and deaths associated with this tragic pandemic. Although there remain both the possibility of a reopening that occurs only with fits and starts, as well as several other key macroeconomic risks, we see a continued recovery in economic and business activity as the key driver of improved earnings growth for equities generally, and critically, for disproportionately better earnings performance among value stocks. Essentially, we anticipate a positive chain of events supporting the equity market in general and value stocks in particular: the unwinding of lockdowns and the government’s continued fiscal and monetary support driving an anticipated recovery in consumer spending and in business activity and investment, as well as a normalization of inflation and yields, driving a rise in earnings and accelerated flow of funds into those names whose prospects have moved from extremely dire last year to increasingly constructive this year and next.

Since the advent of news surrounding efficacious vaccines and therapeutic options in the fall of last year, the global economic outlook has been improving as many states and nations have begun to reopen their economies at least partially. While such reopening progress has been highly uneven, with false starts along the way, the arrow continues to point upward as more and more vaccinations occur. Moreover, this recovery should strengthen further given the apparent pent-up demand among consumers who are long past tired living under the lock-down restrictions, as well as the need to address supply-chain disruptions and other input constraints caused by the pandemic across a variety of areas. Such imbalances will take time to resolve and likely will drive near-term jumps in economic activity.

That the US government has recently elected to inject additional sizeable fiscal stimulus into the economy, while maintaining highly accommodative monetary policies, means that there is an enormous amount of liquidity to drive the acceleration in demand. As a result of historic easing, the Fed balance sheet has grown to $7.4 trillion, after having bought over $4 trillion of fixed income securities since March 2020. By year end, the balance sheet could approach $9 trillion as the Fed has committed to purchasing $120 billion per month of Treasuries and mortgage-backed securities. Meanwhile, the multiple rounds of record stimulus have reached consumers, allowing them to continue making needed purchases even as the shutdown has put many out of work. Additionally, the stimulus checks received have allowed many individuals to repair their personal balance sheets, which creates a favorable set-up for consumer spending as the lockdown orders are lifted, first partially and then completely.

We expect that consumer spending will continue to rebound even as unemployment remains meaningfully above pre-pandemic levels. This is atypical, since normally, during a recession, personal savings decline due to job losses. However, in this downturn, transfer payments such as extended and supplemental unemployment, along with stimulus checks from the fiscal package have provided consumers with a substantial pile of savings. According to the Economist, consumers, stuck at home and unable to spend as much on entertainment, such as restaurants or movie theaters, have accumulated over $1.6 trillion in excess savings in the past year, while a JPMorgan study found that bank balances for the poorest Americans were about 40% higher than the prior year. Goldman Sachs estimates this excess savings could add 2% to GDP growth in the year after a full reopening. Meanwhile, high earners, who have been able to retain their job during the pandemic, have suppressed spending on discretionary activities, such as travel and entertainment, due to social distancing restrictions. The lifting of these restrictions could unleash some of that withheld spending. Importantly, more fiscal transfers are on the way with the recent approval of the President Biden’s $1.9 trillion stimulus package, potentially adding to the anticipated consumer spending spree.

Meanwhile, we anticipate that capital spending and business sentiment will also continue rebounding. We have already seen supply constraints in areas such as semiconductors or building materials that are being addressed with additional capital expenditure commitments. Encouraged by the continued support from both Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen, who have both consistently highlighted the need for additional stimulus support, CEOs should continue to bolster the economic recovery via corporate investments. Moreover, President Biden and Congressional Democrats’ proposal for a multi-trillion-dollar infrastructure investment program, if passed, should provide an additional uplift to GDP, although it will likely take time to be implemented.

Interest rates have been rising along with increasing inflation expectations that come with an economic recovery. The economic boom should provide a particularly healthy tailwind for cyclical companies and financials. Rising input costs actually create an opportunity for many companies to seek price increases, which can boost rather than compress margins for those with quality operations. Meanwhile, rising prices also prompt consumers to spend rather than wait for the next round of price declines; hence, if the consumer has used the stimulus to repair personal balance sheets, then a sustained level of moderate inflation can actually be healthy. Of course, all of this assumes that inflation and interest rates do not rise too much too quickly, as such an environment—last witnessed in the 1970s—was not healthy for equity markets. However, beyond the temporary spikes in many prices that are caused by base effects or short-term, pandemic-caused, supply-chain disruptions, which we think will be too short-lived to impact equities on a sustained basis, our current expectation remains one calling for inflation and rates of the benign variety.

The economic recovery translates into better overall corporate earnings, particularly for those companies that saw the most challenging environment last year. This is already starting to be incorporated into sell-side earnings estimates, but we believe that there is more likely to be additional increases. Usually, analysts initially assign overly-optimistic expectations for upcoming quarterly earnings, and then take these down over time. However, in the current environment, which is so unorthodox and unpredictable, we are seeing the opposite phenomenon whereby the analysts are cautiously raising estimates on a lagged basis. We haven’t seen this behavior since 2010, coming out of the Great Financial Crisis. According to Factset, first quarter 2021 earnings per share for the S&P 500 was revised up by 6% since the end of last year, contrasting with the normal pattern over the last 10 years of bottom-up earning per shares (EPS) estimates for the S&P 500 being revised down by 4.2% on average in the three months leading up to a quarterly reporting season. The same pattern is occurring for sell-side analysts’ full-year earnings estimates, as the 2021 bottom-up EPS estimate for the S&P 500 has increased by 5.0% during the first quarter of this year. The revisions have been particular strong for value sectors as energy, materials and financials were the top three sectors with the strongest expected 2021 earnings growth. If those groups also see the largest and most widespread positive earnings surprises, as we expect, given their disproportionate exposure to the economic recovery, then earnings should strongly support the continued rotation into value stocks.

Certainly, the excess liquidity delivered by supportive government fiscal and monetary policy has flowed into stocks. In contrast with the past, equity fund flows have been positive and strong during the first quarter of this year, further pushing up valuation multiples. A healthy share of those funds have recently found their way into value stocks and value funds, so the rotation into value stocks appears to be driven at least in part by those positive liquidity flows. As the value rotation continues to gather steam, the re-allocation of capital from growth stocks will supply additional support.

Because this recovery should boost most directly the prospects and stock prices of those (largely value) companies most closely tied to the economic rebound, we continue to recommend positioning for the value rotation. We would note that such positioning also accounts for one key risk to the overall U.S. equity market, which is elevated valuation. As the chart below highlights, that valuation level is above 24-year averages, no matter which valuation metric is employed. Because value stocks continue to carry valuation multiples that are lower than those of growth shares or the overall market, despite carrying superior earnings growth and positive surprise potential over the next two to three years, this relative value of value stocks is another important support for the rotation into value, as well as a partial mitigant to this issue of elevated U.S. equity valuation.

   Source: Factset; DoubleLine.  Note: Valuations are from 1/31/1996 to 3/31/2021.

   P/E LTM = price to earnings ratio for the previous 12 months
   P/E FY1 = price to earnings ratio based on estimated earnings for the next year
   P/E FY2 = price to earnings ratio based on estimated earnings for the next two year

   Source: Factset; DoubleLine.  Note: Valuations are from 1/31/1996 to 3/31/2021.

   R1000 Value = Russell 1000 Value Index
   R1000 Value = Russell 1000 Growth Index
   Delta = the difference between the Russell 1000 Value’s and the Russell 1000 Growth’s earnings growth, price to earnings ratio and price to earnings to growth ratio
   PEG = price to earnings-to-growth ratio

We continue to view the many examples of excessive froth in the market with concern, but do not yet see evidence of widespread systemic risks that could jeopardize either the economic recovery or the sustained rotation into value stocks. Examples of this froth include the explosion of so-called Special Purpose Acquisition Companies (“SPACs”), also referred to as blank check companies. While the surge in SPAC issuance began in late 2020, it has accelerated in early 2021, with 298 new SPACs just in the first quarter of this year raising about $100 billion, which is more the total raised in all of 2020, thereby comprising about two thirds of all capital raised through U.S. listings. We see SPACs as riskier than traditional IPOs, with inferior performance relative to traditional IPOs, so their proliferation should be viewed as a sign of market excess and thus, a risk when disappointments proliferate.

There are also other signs of potential froth in the financial markets, such as the recent GameStop retail investor frenzy that has created massive swings and extremely elevated valuation levels in that company’s stock, which we view as unhealthy. With the rise in retail trading activity and the advent of technologies supporting large-scale investor chat rooms, there are increased risks that a particular stock or set of stocks can see their stock prices dramatically detach from underlying fundamentals. This may also have occurred in the case of Archegos Capital, where the ability to dramatically boost a set of stocks to high levels was driven not by employing technologies to gather tens of billions into anonymous and poorly regulated retail investor chatrooms, but rather, by employing large amounts of leverage and exploiting the anonymity of weak disclosure rules around family offices and non-standard derivative contracts (e.g., contracts for differences or CFDs) to drive stocks in short periods of time apparently above levels justified by underlying fundamentals. Should these events become more widespread, then the U.S. stock market, with an elevated valuation multiple, will be more susceptible to a meaningful pullback.

This excess froth is without a doubt being caused by the historically large quantum of liquidity that the government has deployed to keep the economy afloat during the pandemic-prompted lockdowns. This is another example of unintended consequences at work, and it should be monitored carefully, because cheap money invariably leads to excessive risk-taking, including imprudent levels of leverage. While regulators have constrained leverage in the banking system by requiring banks to retain excess capital, the excessive leverage appears to be creeping up in parts of the market among non-bank financial companies. Beyond the Archegos example, we have seen permissive lending standards leading to massive write-downs and executive terminations related to Greensill Capital, another spectacular collapse of a company built on excessive debt. We also worry about the rise of more subtle but perhaps more pervasive risk being driven by the continued search for yield found in the growth of unconventional credit products by non-banking actors such as Golub Capital and Owl Rock Capital, which have issued asset-backed securitization (“ABS”) financing backed by the recurring subscription revenue of software companies with little to no profits. While recognizing that these might be examples of true financial innovation, we also would point out that these novel debt instruments would appear to entail greater risks than traditional ABS financings. If the risks associated with higher leverage and more creative financing operations do come home to roost, then there is great potential to see systemic, adverse impacts for the wider financial system.

The other potential risk related to the historical surplus of liquidity relates to an overheating economy and runaway inflation or a rapid jump in interest rates caused by a loss in confidence in the Fed’s balance sheet and in the U.S. Dollar. As noted, we believe these risks remain low in the immediate future. However, it must be pointed out that the emergence uncontrolled inflation or fears over our rapidly rising indebtedness, compounded by a loss in the credibility of the Fed, could cause a general loss of investor confidence, hurt valuation multiples and hasten a meaningful correction in the equity markets.

For now, we expect the economic recovery to lead to stronger earnings, particularly for value stocks relative to growth stocks. In addition, the reward-to-risk for value stocks remain compelling relative to growth stocks as valuation spreads remain high even with the recent value outperformance. Meanwhile, fund managers are still crowded in growth stocks and are underweight value stocks. All of this lends support to our expectation of a continued value rotation.

As always, we will continue to seek sound, long-term investment ideas and strike reasonable balances within our portfolio among those investment ideas offering safety in uncertain times and those holdings representing compelling long-term value once a broader recovery is underway. Our differentiated fundamental value investment philosophy allows us to capture both of these opportunity scenarios in our ongoing effort to seek out solid relative returns.


In terms of the current portfolio’s positioning, relative to the Russell 1000 Value Index, DBLV is overweight consumer staples, financials, health care, industrials, and communication services. It is underweight consumer discretionary, information technology, materials, real estate and utilities. It is broadly equal weight energy.

The portfolio’s sector weights, both in absolute terms and also relative to the benchmark, are found in the following charts:

As of 03.31.2021.

In information technology, we are underweight the sector after taking some profits on our semiconductor-related positions, as these names have rallied on news of supply shortages. While we believe the technology disruptors will be able to sustain idiosyncratic growth via value-creating innovation, and automating and reducing costs, we believe many such names have become more than appropriately priced by the market. We continue to maintain exposures in underappreciated technology companies that are more cyclical in nature and which trade at more modest valuation multiples (e.g., KBR Inc., Lam Research Corp.). Moreover, we view Vontier Corp. as an industrial company, making our unofficial weighting in the IT sector even lighter relative to the RLV benchmark excluding this name.

We increased our overweight in financials versus the benchmark, adding to our exposure to interest rate and credit sensitive financials. We continue to expect the fundamentals for financials to improve as the economy strengthens. Banks have accumulated substantial capital in the years since the Global Financial crisis and should emerge from the current downturn with solid balance sheets. Despite initial fears of significant credit losses as a result of the recession, credit trends have been relatively stable, and with the economic recovery underway, a good portion of expected losses are less likely to materialize thereby supporting higher earnings estimates. Also, the improving economy has led to higher interest rates and a steeper yield curve, which are favorable for net interest income. We believe there is potential for further upward revisions to earnings estimates from a better outlook for loan growth and higher interest rates driven by a rise in inflation expectation as the economic recovery gains steam. Meanwhile, financials still trade at a higher discount to the overall market compared to historical levels. Also, with the Fed planning to lift restrictions in Q3 2021 on capital returns added during the pandemic and banks having accumulated considerable excess capital, we expect banks to ramp buybacks and dividends, potentially providing support for share prices. During the quarter, we built a new position in Wells Fargo and add to our existing bank (e.g., Fifth Third Bancorp and Citizens Financial) and life insurance positions (e.g., Prudential Financial). Wells Fargo has made meaningful progress towards resolving its past governance and risk management issues clearing a path towards the eventual removal of the asset cap, which we believe will lead to a re-rating of the stock. We continue to have a higher mix of asset-sensitive financials (i.e., stocks that should outperform in a rising rate environment) compared our benchmark.

In health care, we are moderately overweight the sector, with most of the overweight exposure centered among healthcare service providers (e.g., Cigna, Anthem, and CVS Health), which all trade at significant discounts to the sector and overall market. While the health care industry faces increasing regulatory risks under Democratic leadership, we believe that, ultimately, the likely regulatory impact upon the service providers’ business models will be less adverse than feared. In contrast, we believe there is increasing regulatory risk to Biopharmaceutical companies, with bipartisan efforts to lower drug prices. As such, we are now modestly underweight this part of the sector, with our pharmaceutical holdings in companies with relatively less US exposure, while having superior mid- and long-term earnings prospects, given their advantaged development pipelines and benign loss-of-exclusivity patent portfolio profiles (e.g., Sanofi and AstraZeneca). We continue to have a favorable view of physician preference Medical Device manufacturers (e.g., Medtronic and Alcon), which should benefit as procedure volumes return to normal pre-pandemic levels with the continued COVID-19 vaccine rollout, and are now overweight the sub-sector. However, while increasing vaccinations are positive for the Medical Device makers, the impact to the Life Science Tools and Diagnostics providers is more mixed with lower testing volumes providing a near term earnings growth headwind. We continue to avoid exposure here given these dynamics in addition to the sub-sector’s lofty valuations.

In the consumer discretionary sector, we retain healthy exposure to retailers with a proven ability to compound value throughout the full economic cycle, like Dollar General, Target and TJX Companies, leaving aside some of the riskier, short term beneficiaries of the earliest stages of the cycle. Within consumer staples, we continue to hold companies such as Mondelez and Pepsi, which have the necessary brand strength, pricing power and category exposures to offer attractive risk-adjusted returns in an environment where inflation may creep above the Federal Reserve’s two-percent target.

While we are modestly under-weight the industrials sector according to GICS, we are maintaining cyclical exposure with lower multiple names in Transportation (Norfolk Southern), Machinery (Parker Hannifin) and Commercial Aerospace (Raytheon Technologies, Honeywell and Boeing) as well as downstream Oil & Gas exposure (Honeywell) as we see such names thriving in an eventual recovery. Due to our view of the underlying businesses of Vontier Corp., which spun out of an industrial company (Fortive Corp.), we view our positioning in the industrials sector as modestly overweight.

In communication services, we recently shifted to a modest overweight, as we increased our cyclical exposure. We established a new position in Discovery Communications, after the liquidation of Archegos drove a significant pullback in the stock. Discovery should benefit from an upturn in advertising spending as the economy strengthens. Its direct-to-consumer strategy appears to be gaining traction, positioning it for better aggregate sub growth.

While we are modestly underweight in the materials sector, our position in Dupont provides cyclical, infrastructure and semi-conductor exposure. Our position in International Flavors & Fragrances provides modest reopening economic exposure combined with a significant turnaround opportunity in a company that has underperformed two years.

We are equal weight in the energy sector. We are underweight real estate as we expect financials to perform better than real estate in a rising rate environment. Within real estate, our position is relatively balanced with a defensive secular growth position (American Tower) and a cyclical position (BXP Properties).

Finally, we expect the further re-openings and highly accommodative fiscal and monetary policies to provide a tailwind to the economy and the growth-to-value rotation. Thus, we have deployed some of the cash towards attractive value opportunities.

As always, 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 LP do secondarily inform these sector weightings.


In terms of the portfolio’s attribution by sector, quarterly performance for DBLV was driven by communication services, consumer discretionary, consumer staples, energy, financials, health care, industrials, information technology, materials, real estate, and utilities. On a relative basis, DBLV was helped by communication services, consumer staples, energy, financials, health care, materials, and utilities, offset by adverse results within consumer discretionary, industrials, information technology

As of 03.31.2021.

Top Holdings

The top three positive contributors to third quarter performance were International Flavors (IFF), Fifth Third Bancorp (FITB), and Capital One Financial (COF).

  • IFF (materials) is a leading global manufacturer of flavors and fragrances. The position was added to the portfolio through the option to convert Dupont (DD) shares into IFF shares with the sale of Dupont’s Nutrition and Bioscience business to IFF. IFF outperformed in Q1 2021 after the conversion was executed. While there were many trading factors during the conversion, what I believe the market realized was how undervalued IFF was relative to its peers and its historical valuation. Combining the Nutrition and Bioscience business into IFF not only made IFF the largest food and flavors company globally with the largest R&D budget, but it also provided several paths with which the company could grow organic sales and reduce costs. With the stock trading at a 38% discount to its direct peers, IFF’s ability to close this valuation gap with fundamental performance improvement became much clearer. While the company has a lot of execution ahead of it, the stock remains undervalued with attractive upside to a fair value that would still be a 19% discount to its peers.
  • FITB (financials) is well-managed regional bank with a solid competitive position in in Midwest. FITB has a strong commercial and industrial loan business, driven by its long-term relationship with companies. It maintains a healthy loan book with primary exposures to commercial and industrial loans, residential mortgages, auto loans and commercial real estate mortgages. Also, the company has prudently managed costs, initiating a new cost reduction program late in 2020. FITB’s strong performance this quarter was driven by the reflation trade and favorable credit trends, along with positive earnings revision. We believe there is still further upside to the stock as we would expect net interest margin and loan growth to improve with a further strengthening of the economy. Even with the recent rally, its stock continues to trade at greater discount to the market than it has historically. As such, we added to our position during the quarter.
  • COF (Financials) is a leading credit card and auto finance company. The company has a strong understanding of consumer risks and has been good at underwriting subprime credit by leveraging technology and statistical data. Over the last few years, COF has migrated its portfolio mix towards higher quality credit, by growing its prime credit card business and lowering its exposure to high balanced revolvers. During the quarter, COF stock continued to rally on favorable credit trends, the prospects for resuming its capital return program, and higher interest rates. Its Q1 2021 earnings estimates was revised up about 45% over the last 3 months, primarily reflecting expectation for lower credit losses due to an improved economic outlook. Furthermore, COF will likely ramp up its capital returns once the Fed restrictions are lifted in Q3 2021. Last year, despite performing well during the Fed’s financial stress tests and having more than adequate regulatory capital, COF was required to cut its dividend and curtail share repurchase due to concerns about credit losses. COF has managed credit risk well, enabling it to accumulated substantial excess capital. While loan growth remains a challenge in the near-term, further re-openings should drive higher consumer spending and improve the outlook for loan growth.

The top-three detractors from quarterly performance were Vontier (VNT), TJX Companies (TJX), and Intercontinental Exchange (ICE).

  • VNT (information technology) was added to the portfolio after it was spun out of Fortive (FTV) in October of 2020. Vontier under-performed during the quarter as the company guided for flat organic growth in 2021 citing challenging second half comps. While the company generates high teens operating margins and solid free cash flow, Vontier is a transition story from retail fueling automation to electrical vehicle charging and mobility software. This process will take time, but it is currently being given zero value by the market. Vontier trades a 30-40% discount to its peers with a 9% free cash flow yield all while generating higher operating margins than the peer average. With a compelling valuation, Vontier does not have much downside and the option to transition the business remains attractively priced.
  • TJX (consumer discretionary) operates off-price apparel and home goods retail stores in both domestic and international markets under a variety of storefronts, including TJ Maxx, Marshall’s and Homegoods. TJX lagged the consumer discretionary sector in Q1 as investors shifted into companies with greater cyclicality, more direct exposure to an economic reopening, and easier year-over-year comparisons ahead. The FY 2021 guidance that TJX provided on their Q4 earnings call was typically conservative, and lacked meaningful margin expansion that many market participants were hoping for. In an environment where many full-price apparel retailers are expecting peak margins as a result of inventories that got cleaned up during the pandemic, TJX’s more consistent but less flashy results are struggling to gain the market’s attention. Nonetheless, off-price remains a secular share gainer and TJX’s scale and high-level of execution make it an attractive way to play this trend over a multi-year investment horizon.
  • ICE (financials) operates multiple financial exchanges and securities clearing houses, enjoying strong competitive advantages from network effects and scale economies. Although it delivered strong operating performance across all is business segment in Q4, ICE did not participate in the reflation trade, underperforming more asset sensitive financial such as banks, consumer finance companies and life insurance companies. Its recent acquisition of Ellie Mae raises its mix of steady, predictable recurring revenues while subscription revenue in its data and analytical services business continues to grow. ICE is a high quality company with a history of leveraging its unique core assets to deliver incremental value and remains a core holding.

During the most recent quarter, we introduced Discovery (DISCA), International Flavors (IFF) and Wells Fargo (WFC) as new holdings.

We made net additions to our positions in Reynolds Consumer Products (REYN), Mondelez International (MDLZ), PepsiCo (PEP), Dollar General (DG), Alcon (ALC), Prudential Financial (PRU), DuPont de Nemours (DD), Citizens Financial Group (CFG), Fifth Third Bancorp (FITB), Medtronic (MDT), AstraZeneca (AZN), Verizon Communications (VZ) and Vontier (VNT).

We made net reductions to our positions in Roche Holding (RHHBY), Flex Ltd (FLEX), US Foods Holding (USFD), KLA (KLAC), Microchip Technology (MCHP), Lam Research (LRCX) and Anthem (ANTM).

We eliminated our holdings in Air Products & Chemicals (APD), Taiwan Semiconductor Manufacturing (TSM) and Willis Towers Watson (WLTW).

The top ten portfolio holdings, by weight and active weight, as of quarter’s end, can be seen in the following tables:

As of  03.31.2021. 

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.


As we have noted many times previously, we believe that the fundamental value strategy informing our management of DBLV is well suited to navigate through the myriad environments of evolving risks and opportunities. Recall that our differentiated strategy facilitates the construction of a portfolio with potentially higher prospective risk-adjusted returns by allowing us to seek compelling investments within low-multiple value names tied to rising expected returns in a cyclical upswing as well as among high-quality, less economically sensitive stocks trading at reasonable prices. We think the current environment presents a growing opportunity to capitalize on a sustained outperformance of cyclical and value stocks over their growth counterparts.

Continued caution is warranted on the equity market in general, given that the economic recovery remains fragile, and valuations are elevated versus historical averages and in many instances appear ahead of underlying fundamentals. However, we do see opportunities for active equity managers who can be selective to capitalize on the emerging growth-to-value rotation in U.S. equities as it gains strength through the course of 2021 alongside a strengthening economic recovery and an improving earnings outlook for value names. We see this value rotation equally supported by the historically large value spread that creates opportunities to find relatively cheaper investments amongst value stocks. To wit, at quarter’s end, this balanced exposure carried a price-to-earnings multiple on 2021 consensus estimates for DBLV of 17.1x, versus the RLV at 19.3x and the S&P 500 at 23.1x. Because value stocks appear to be the new growth stocks for at least the next year or two, and given their lower valuation multiples, we continue to shift our exposures within the DBLV portfolio toward more cyclical and value stocks to capitalize upon these opportunities and to counsel other investors to do the same.

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


Past Manager Commentary


  • A basis point is one hundredth of a percentage point (0.01%).
  • SPAC (special purpose acquisition company) is a company with no commercial operations that is formed strictly to raise capital through an initial public offering for the purpose of acquiring an existing company.

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.