FWDB: June 2020 Portfolio 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/fwdb.
FolioBeyond’s algorithm underlying the AdvisorShares FolioBeyond Smart Core Bond ETF (FWDB) returned -0.025% in June versus +0.63% for the Bloomberg Barclays U.S. Aggregate Bond Index (“AGG”). Over longer time periods, FWDB continues to outperform Morningstar’s US Fund Multisector Bond category as shown in the table below.
Risk levels in the option markets continue to ratchet down with continued Federal Reserve intervention and slow renormalization of the economy. Consequently, the FWDB has gradually increased risk in short duration High Yield Credit and rate duration primarily in US Agency bonds.
PERFORMANCE SUMMARY AS OF JUNE 30, 2020
|1-Month Return||YTD 2020 Return||1-Yr Return||3-Yr Return||5-Yr Return|
U.S. Aggregate Bond Index (“AGG”)
|Morningstar Multisector Bond Category Average||1.64%||-2.04%||0.69%||2.63%||3.30%|
|FWDB’s Morningstar Category Percentile Rank||—||—||33||33||28|
|# of Funds in Morningstar Multisector Bond Category||352||336||321||283||235|
Source: BNY Mellon, Morningstar.
Performance data quoted represents past performance and is no guarantee of future results. All Fund data and performance data quoted is believed to be accurate, and unless otherwise stated, is sourced from the Fund administrator, the Advisor’s or Sub-Advisor’s proprietary data, and Morningstar. 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.
Morningstar rankings are based on a fund’s average annual total return relative to all funds in the same Morningstar category. Fund performance used within the rankings, reflects certain fee waivers, without which, returns and Morningstar rankings would have been lower. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100.
Although information herein is believed to be reliable, FolioBeyond makes no representation or warranty as to its accuracy, and information and opinions reflected herein are subject to change at any time without notice. The past performance information presented herein is not a guarantee of future results.
The primary driver of returns in June was long duration Treasuries and short duration High Yield Corporate Bonds, offset by Agency and short Treasury exposures. The markets are likely to continue to respond to any significant changes related to the Coronavirus in conjunction with the pace of the reopening of the economy supplemented with any new government/Fed stimulus actions.
Highlight: Sector Model Volatility Measures
Effective portfolio optimization involves a comprehensive approach for properly capturing constantly changing sector volatility levels. FWDB’s underlying algorithm quantifies the volatility of each fixed income sector ETF before they are included in the FolioBeyond’s overall optimization framework that incorporates correlation effects and applies various model constraints.
In order to demonstrate the changing risk dynamics experienced in recent months, we provide a high-level view of recent trends of our model volatility measures for representative sectors across the spectrum of ETFs in our investible universe. The volatility measures we show in the graph below represent the overall risk measure of each ETF quantified independently (before correlation effects are considered). These risk measures incorporate both historical and current implied volatility levels as well as momentum effects. The graph below shows that while certain sectors like long-term Treasuries (TLH) and Investment Grade Corporates (LQD) have come back closer to pre-March risk levels, many sectors are still exhibiting elevated risk levels, especially at the higher end of the risk spectrum, as shown for High Yield Municipals (HYD) and Agency Mortgage REITs (REM). Given the risk levels of the various fixed income sectors, FWDB’s model would require additional reductions in volatility levels to enable a full risk allocation to the higher risk sectors, as it did for a large part of 2019. This overall result is consistent with many fixed income investors’ qualitative views of the current state of the fixed income markets – specifically that valuations may have gotten ahead of the fundamental risks still facing the economy.
SHY – iShares 1-3 Year Treasury Bond ETF; TLH – iShares 10-20 Year Treasury Bond ETF; LQD –iShares iBoxx $ Investment Grade Corporate Bond ETF; SJNK – SPDR Bloomberg Barclays Short Term High Yield Bond ETF; HYG – iShares iBoxx $ High Yield Corporate Bond ETF; HYD – VanEck Vectors High-Yield Municipal Index ETF; REM – iShares Mortgage Real Estate Capped ETF.
Although information herein is believed to be reliable, FolioBeyond makes no representation or warranty as to its accuracy, and information and opinions reflected herein are subject to change at any time without notice. The past performance information presented herein is not a guarantee of future results
Model portfolios need to utilize a consistent approach for properly measuring the multi-dimensional aspects of fixed income risk to deliver superior risk-adjusted returns over time. We believe FolioBeyond’s advanced algorithm used in FWDB allows investors to maintain their desired target portfolio risk levels while optimizing the allocations to maximize returns within this context.
|Ticker||Security Description||Portfolio Weight %|
|SHV||ISHARES SHORT TREASURY BOND||30.27%|
|AGZ||ISHARES AGENCY BOND ETF||27.61%|
|SJNK||SPDR BBG BARC ST HIGH YIELD||17.67%|
|SHY||ISHARES 1-3 YEAR TREASURY BO||12.64%|
|SHYG||ISHARES 0-5 YR HY CORP BOND||8.46%|
|TLH||ISHARES 10-20 YEAR TREASURY||3.04%|
As of 05.31.2020. Cash is not included.
CEO of FolioBeyond
AdvisorShares FolioBeyond Smart Core Bond ETF (FWDB) Research Strategist