GK: 1st Quarter 2022 Portfolio Review

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Commentary

The first three months of the year were one of the worst first quarters on record. There were a few reasons for the turmoil.

First, inflation rose to a four-decade high, continuing a trend that began during the latter half of last year. Prices on everything from clothes to eggs to gas spiked, weighing on consumer confidence and causing investors to worry about the strength of the economy.

Secondly, the Fed raised rates for the first time since December 2018, and with policymakers having telegraphed more tightening ahead, traders are now betting the next two Fed meetings will each produce half-point hikes. Surging rates mean companies have higher borrowing costs, which is bad news for growth stocks – including many big tech names – whose valuations are based on future earnings.

Third, Russia’s invasion of Ukraine further exacerbated inflation. Western nations targeted Russian oil exports with sanctions, while Ukraine is one of the world’s largest grain producers. That one-two punch caused already escalating gas and food prices around the globe to climb even more.

The Worst Is Behind Us

Due to all this strife, the S&P declined by 4.6% during the first three months of 2022, while the tech-heavy NASDAQ Composite was down nearly 9%. The carnage would have been far worse had stocks not staged a comeback during the final weeks of the quarter, when the S&P rallied nearly 12% from March 14 – 28.

As painful as elevated rates may be in the interim, it is the best approach to ensure the longer-term health of the economy, and all told, we believe the worst is behind us. Indeed, while stocks may not finish the year in the black, markets should be able to withstand the ups and downs, thanks to a strong labor market, resilient consumer spending and relatively strong corporate earnings.

Not Immune, But Still Optimistic

The AdvisorShares Gerber Kawasaki ETF (GK) was not immune to some of the obstacles cited above that caused the broad-based declines. Many of our technology and climate-focused investments took a beating.

Still, we have never been as optimistic about the future of our top holdings – Tesla, Microsoft, Apple and Nvidia – as we are today. In our opinion, all are solid, mature and high-growth companies with enormous upside. Even so, we have made adjustments within the fund that reflect the reality of today’s environment.

For example, rate hikes have made some of our real estate holdings unattractive, so we have pared them in favor of financials such as Morgan Stanley and Silicon Valley Bank. Also, we shed consumer discretionary exposure to add industrials, including John Deere and Northup Grumman.

And finally, we trimmed our Global X Lithium & Battery Tech ETF position in light of increased political interference in business and intensifying Covid-19 protocols in China, which produces an overwhelming majority of the world’s lithium batteries.

Thanks to these moves, and others, we believe the fund is in a great position to recover and produce outsize gains once markets stabilize. That should happen once inflation cools and the Fed taps the breaks on increases, which should occur about six months to a year from now. Until then, expect continued volatility.

Top Holdings

Ticker Security Description Portfolio Weight %
TSLA TESLA INC 11.64%
NVDA NVIDIA CORP 5.37%
MSFT MICROSOFT CORP 4.86%
MGM MGM RESORTS INTERNATIONAL 4.47%
AAPL APPLE INC 4.31%
BX BLACKSTONE INC 3.73%
GOOG ALPHABET INC-CL C 3.34%
IIPR INNOVATIVE INDUSTRIAL PROPER 3.09%
MSOS ADVISORSHARES PURE US CANNABIS ETF 2.67%
NFLX NETFLIX INC 2.59%

As of 03.31.2022. Subject to change. Cash is not included. 

 

Regards,

Ross Gerber
Gerber Kawasaki, President and CEO
AdvisorShares Gerber Kawasaki ETF (GK) Portfolio Manager

Past Manager Commentary

 

Definitions:

The S&P 500 Index is a broad-based, unmanaged measurement of changes in stock market conditions based on the average of 500 widely held common stocks. One cannot invest directly in an index.


 

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