HDGE: 4th Quarter 2021 PortfolioReview

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/hdge.

Performance

For the fourth quarter of 2021, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) returned -4.04% (NAV) while the S&P 500 Index gained 11.03%.

Markets Review

Market sentiment points to the bull side right now. The market is deeply oversold and not just among technology stocks. The following two charts show that fear is the dominant emotion.  When this fear eases (and it always does), a snap-back reaction typically follows. The quality of the bounce will determine the right time for the fund to increase exposure again.

      

Further inside the market, risk appetites dried up in Q4, as evidenced by the following two graphs.  Investors fled smaller caps, especially those of younger, unprofitable companies that had been bid up for years. The top chart, below, shows the performance of the bottom quintile of market cap in the Two Rivers Analytics universe versus the performance of the universe itself.  This decline in risk appetites provided the fund a particularly fertile set of opportunities in Q4. 

Stocks were grouped and ranked by the relevant factor as of the end of the prior month and the returns computed for the month just ended.  Stocks chosen were based on Two Rivers Analytics’ universe of stocks.  © Copyright 2022.  All Rights Reserved Two Rivers Analytics.  Further Distribution Prohibited without prior permission.

Top Holdings

For the fourth quarter of 2021, the largest realized and unrealized gains were Carvana Co. (CVNA), Magnite, Inc. (MGNI), and Healthcare Services Group, Inc. (HCSG).  Carvana (CVNA) stock dropped sharply in December, ending the quarter down -23.13%.  Carvana’s recent operating profit proved transitory as profits turned into an operating loss last quarter.  Gross profit per unit sold declined in its core and wholesale segments.  In addition, the company includes non-operating items in its EBITDA calculations.  Magnite (MGNI) stock fell throughout the quarter ending down -37.50%.  The earnings release in November highlighted that most of the company’s growth came through acquisitions, not organically. Further, GAAP losses were higher than forecasts expected due to supply-chain ad cancellations.  Healthcare Services Group (HCSG) stock fell sharply in October  ending down -28.81%.  The stock has been a perennial underperformer.  This quarter it announced revenues that were 5% below last years.  Worse, the company missed earnings expectations dramatically.  The stock plunged and we closed the position.

The largest realized and unrealized losses for the fourth quarter were SailPoint Technologies Holdings, Inc. (SAIL), HSBC Holdings PLC ADR (HSBC) and FMC Corporation (FMC).  All positions were closed by year end.  SailPoint (SAIL) stock spiked in November closing the quarter 12.73% higher than it started.  The identity security company reported strong sales and earnings growth that were higher than analysts anticipated.  HSBC (HSBC) stock rose during the quarter, rising 15.30%.  Strong earnings, expansion into Chinese insurance markets and a newly announced stock buyback program lifted the stock.  FMC (FMC) stock jumped on earnings in November, closing the quarter up 20.02%.  The company’s results soundly beat estimates.  Strong end-user demand and aggressive supply chain management boosted the company’s fortunes.

Ticker Security Description Portfolio Weight %
CVNA CARVANA CO -4.67%
OLED UNIVERSAL DISPLAY CORP -4.48%
CS CREDIT SUISSE GROUP-SPON ADR -3.50%
CAT CATERPILLAR INC -3.40%
HBI HANESBRANDS INC -3.15%
NWL NEWELL BRANDS INC -3.02%
DB DEUTSCHE BANK AG-REGISTERED -2.94%
SNA SNAP-ON INC -2.90%
QSR RESTAURANT BRANDS INTERN -2.86%
PTC PTC INC -2.52%

As of 12.31.2021. Cash not included.

Respectfully,

Brad Lamensdorf
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager

 

Past Manager Commentary

Definitions:

The S&P 500 Index is a free-float capitalization-weighted index based on the common stock prices of 500 American companies. It is one of the most commonly followed equity indices and many consider it the best representation of the market and a bellwether for the U.S. economy.

A Bear Market (Bearish) is a market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor’s 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.

A Bull Market (Bullish) is a financial market of a group of securities in which prices are rising or are expected to rise. The term “bull market” is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.

A short position is the sale of a borrowed investment with the expectation that it will decline in value.

Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.

Implied Volatility is the estimated volatility of a security’s price. In general, implied volatility increases when the market is bearish and decreases when the market is bullish. This is due to the common belief that bearish markets are more risky than bullish markets.

The Volatility Index (VIX) is the ticker symbol for the Chicago Board Options Exchange (CBOE) Volatility Index, which shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant
to be forward looking and is calculated from both calls and puts. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. The VIX is a contrarian sentiment indicator that helps to determine when there is too much optimism or fear in the market.


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. The Fund may invest in (or short) ETFs, ETNs and ETPs. In addition to the risks associated with such vehicles, investments, or reference assets in the case of ETNs, lack of liquidity can result in its value being more volatile than the underlying portfolio investment. Other Fund risks include market risk, equity risk, short sales and leverage risk, large cap risk, early closing risk, liquidity risk and trading risk. Short sales involve leverage because the Fund borrows securities and then sells them, effectively leveraging its assets. The use of leverage may magnify gains or losses for the Fund. See prospectus for specific risks and details.

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.