FWDB: 1st Quarter 2021 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.

Commentary

FolioBeyond’s algorithm underlying the AdvisorShares FolioBeyond Smart Core Bond ETF (FWDB) returned -0.38% in March. The strategy outperformed the the Bloomberg Barclays U.S. Aggregate Bond Index (“AGG”) which returned -1.25%.  During Q1 of 2021, FWDB returned -1.51%, outperforming the AGG which returned -3.37%.

The outperformance of FWDB occurred with the backdrop of Treasuries’ steepening selloff which maintained its trend in March, with the 2 to 10-year yield spread widening by another 28 basis points. FWDB’s strategy has been positioned with a shorter duration profile than AGG but with higher current income, primarily from short-duration High Yield exposure. As the relative value relationships change, the model will rebalance the portfolio to maximize projected returns subject to risk constraints.

Performance Summary as of March 31, 2021

Total Return 1-Month YTD 2020 1-Year 3-Year 5-Year
FWDB (NAV) -0.38% -1.51% 3.48% 3.47% 3.94%
Bloomberg Barclays
U.S. Aggregate Bond Index (“AGG”)
-1.25% -3.37% 0.71% 4.65% 3.10%
Standard Deviation     1-Year 3-Year 5-Year
FWDB 2.95% 4.49% 4.00%
AGG 3.61% 3.56% 3.31%

Source: BNY Mellon, Morningstar.

Standard Deviation measures the dispersion of a set of data from its mean and is calculated as the square root of variance. Sharpe Ratio measures the average return minus the risk-free return divided by the standard deviation of return on an investment.

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.

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.

 

Highlight: Review of Fixed Income Risk Factors

Given fluctuations in the perceived pace of the economic recovery and inflationary concerns, investors need to capture the changing risk dynamics emanating from shifts in fundamental and technical factors. It is essential in the current environment to maintain a disciplined approach for quantifying the varying effects of fundamental factors.

To review the major drivers of value and risk in the Fixed Income market’s diverse product sectors, we provide a qualitative overview of the significant risk dimensions present in a subset of the 23 subsectors we analyze on an ongoing basis. While some of the risk factors are clearly evident, such as the high duration risk in long Treasuries and Municipal Bonds, the combination of risk factors embedded in certain product types might be less obvious.

For example, while Treasury Inflation-Protected Securities (TIPS) protect against rising inflationary expectations, there is a significant duration component in TIPs that can offset any gains from rising inflation if the environment is accompanied by increasing interest rates. Another example is Bank Loans, where the product’s floating rate nature would make it insensitive to changes in intermediate and long-term Treasury rates.  Additionally, since most Bank Loans have longer maturities, they are adversely impacted when credit spreads widen. This makes its spread duration risk more significant, especially in any rate move where credit spreads gap out. A third example is Mortgage REITs, where the leverage risk amplifies the prepayment risk in the underlying Mortgage Backed Securities (MBS) portfolio.

RISK Long-Term Treasury TIPs Intermediate-Term Corporate MBS Bank Loans High Yield
Corporate
Long-Term Municipals Mortgage REITs
Duration High Moderate/
High
Moderate Moderate   Moderate High Low/ Moderate
Spread Duration     Moderate Moderate Moderate High High High
Credit/
Default
    Low   Moderate/
High
Moderate/
High
Low Low
Option/ Callable     Moderate Moderate   Moderate   High
Liquidity     Low Low Moderate Moderate Moderate High
Other   Inflation   Prepay       Leverage;
Prepay

The good news is that the diversity of risk-return profiles in the Fixed Income market allows for effective implementation of portfolio solutions that match institutional and individual investors’ desired risk goals. FolioBeyond’s optimization approach used in managing FWDB evaluates the opportunity set across many discrete subsectors in the Fixed Income market. It produces optimal portfolio allocations while limiting the aggregate risk level to be equivalent to the broad AGG benchmark.  The Fixed Income market’s quantitative nature lends itself well for running comprehensive value and risk updates daily, with timely rebalancing transactions as required.

 

Top Holdings

Ticker Security Description Portfolio Weight %
BKLN INVESCO SENIOR LOAN ETF 30.17%
SJNK SPDR BBG BARC ST HIGH YIELD 21.68%
TLH ISHARES 10-20 YEAR TREASURY 19.30%
AGZ ISHARES AGENCY BOND ETF 10.70%
SHYG ISHARES 0-5 YR HY CORP BOND 8.95%
TLT ISHARES 20+ YEAR TREASURY BO 6.55%
HYD VANECK VECTORS HY MUNI ETF 2.25%

As of 03.31.2021. Cash is not included.

Respectfully,

Yung Lim
CEO of FolioBeyond
AdvisorShares FolioBeyond Smart Core Bond ETF (FWDB) Research Strategist

 

Past Commentary

DEFINITIONS:

A basis point is one hundredth of a percentage point (0.01%). 


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. ETNs have a maturity date and generally, are backed only by the creditworthiness of the issuer. The value of an ETN may be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in the underlying market (e.g., the commodities market), changes in applicable interest rates, and changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the market. Other Fund risks include market risk, equity risk, early closing risk, liquidity risk and trading risk. The Fund will be subject to the risks associated the Underlying ETFs’ or ETP’s investments such as commodity risk, concentration risk, credit risk, fixed income risk, high yield risk, income risk, interest rate risk, and investment 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.