GK: 2nd Quarter 2022 Portfolio Review
Commentary
The second quarter was one of the worst three-month stretches for stocks in recent memory. The S&P 500 Index fell into bear market territory and plummeted nearly 17%, while the tech-heavy NASDAQ Composite Index* performed even worse, finishing the quarter down more than 22%.
While a confluence of issues battered equities during this period, rising inflation drove most of the bad news.
With prices spiking, the Fed responded by hiking interest rates multiple times. Those increases raised borrowing costs for growth-hungry tech companies, which weighs on future earnings and makes them less attractive to investors.
Also, rising prices force everyday consumers to make a choice: spend money on the things they need (gas and food) or the things they want (devices, electric cars and trips). That decision is easy for most families.
These dual factors partly help to explain why the AdvisorShares Gerber Kawasaki ETF – which has a high concentration of tech and consumer discretionary holdings – was unable to rise above the second-quarter carnage.
China’s Covid-zero policies were also a factor. Anytime the world’s biggest manufacturer shuts down large portions of its economy, it will snarl supply chains and make it more difficult for businesses to get the goods they need – all of which causes prices to rise even further.
The good news is that there are a number of reasons to be optimistic about stocks in the months ahead.
For one, inflation is showing signs of moderating. Gas prices have dropped sharply, with the average price-per-gallon down by nearly a dollar nationally since peaking in mid-July. Commodities like copper and wheat have also fallen off dramatically. If these trends hold, not only will consumers have more money to spend but it could prompt the Fed to tap the brakes on its most aggressive rate hikes – good news for a wide variety of our holdings.
Secondly, China’s economy barely grew during the second quarter, and the public is beginning to push back against the government’s draconian Covid policies. It must shift course to ensure growth and manage the growing backlash.
Third, despite GDP** reports that suggest a recession is imminent, the domestic economy enjoys a strong foundation. While consumer balance sheets are not as healthy as they were at the beginning of the year, they remain in good shape, buoyed by stimulus payments and high savings rates during the pandemic.
The above factors, combined with the continued endurance of the labor market, should keep the economy afloat and prop up equities for the remainder of 2022.
That said, we have made some notable adjustments to the fund. We’ve added to our clean energy and climate-related holdings, believing that recently passed climate legislation in the Senate will eventually boost the solar and EV (electronic vehicles) industries. Also, we’ve upsized our exposure to semi-conductors and sold Twitter, which is beset by problems in the wake of Elon Musk’s agreement to buy the company falling apart.
All told, we remain bullish on the U.S., especially relative to the rest of the world. The outsize gains of the third quarter may not be a complete harbinger of things to come, but we believe the market has bottomed out, and better overall days are ahead.
* The Nasdaq Composite Index is a market capitalization-weighted index of more than 3,700 stocks listed on the Nasdaq stock exchange.
** Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.
Top Holdings
| Ticker | Security Description | Portfolio Weight % |
| TSLA | TESLA INC | 10.10% |
| MSFT | MICROSOFT CORP | 5.66% |
| MGM | MGM RESORTS INTERNATIONAL | 4.85% |
| AAPL | APPLE INC | 4.72% |
| NVDA | NVIDIA CORP | 4.18% |
| BX | BLACKSTONE INC | 4.03% |
| GOOG | ALPHABET INC-CL C | 3.65% |
| PFE | PFIZER INC | 3.52% |
| IIPR | INNOVATIVE INDUSTRIAL PROPER | 2.91% |
| DE | DEERE & CO | 2.72% |
As of 06.30.2022. Subject to change. Cash is not included.
Regards,
Ross Gerber | Gerber Kawasaki | President and CEO
AdvisorShares Gerber Kawasaki ETF (GK) Portfolio Manager
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