HDGE: July 2020 Portfolio Manager 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/hdge.
For the month of July, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost 2.89% while the S&P 500 gained 5.64%.
The market remains overvalued and overbought in the face of the worst GDP report ever released. This month, we highlight how corporate insiders are behaving in light of the rally since March’s market low.
Company Insiders Are Selling Into Major Market Rebound
As the insider transactions ratio chart below shows, company insider transactions have pivoted from purchasing their company’s shares to selling them. This dramatic swing moved this indicator’s market forecast from bullish to bearish. This chart, from Thompson Reuters, shows the ratio of insider sales to buys at 44. That’s well into bearish territory. The buying frenzy in March turned out to be an accurate indication that insiders, who tend to have superior knowledge of their industries and companies, thought their shares to be undervalued at the time. Today, however, significant insider selling now should be heeded as an indication that company executives think their shares are overvalued and could be due for a tumble. This is one of number of bearish market indicators we’ve highlighted recently. These sell signals come at time of bleak economic reports, led by the news that the second quarter Gross Domestic Product (GDP) dropped by 32.9%, annualized, as a result of virus-induced business shutdowns. That’s the worst ever recorded drop in GDP. If businesses have been reopened prematurely, and the pandemic continues to spread, the economic picture could continue to worsen.
The rise in the market since March has led to dangerous conditions again. In July, momentum boosted large cap growth stocks to new highs (again). Our long term momentum studies show that top decile momentum stocks outperformed the broader market.
High growth companies also led the markets higher. July’s rally was mostly tech-driven, but had help from certain cyclical groups too.
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 2019. All Rights Reserved Two Rivers Analytics. Further Distribution Prohibited without prior permission.
For the month of July 2020, the largest realized and unrealized gains were Canon Inc. Sponsored ADR (CAJ), PROS Holdings, Inc. (PRO), J2 Global, Inc. (JCOM)and EPR Properties (EPR). Canon Inc. ADR (CAJ) dropped sharply towards the end of July leaving the stock down -19.03% on the month. The company reported its first loss in eight years and cut its dividend. The company is not well positioned viz-a-viz its competition and even its MRI unit is being hurt now by the Covid crisis. PROS Holdings (PRO) dropped -26.56% in July. This marketing and pricing artificial intelligence software company reported a decline in earnings on lower sales volumes. Many of its B2B customers are facing difficulties from the economic slowdown. J2 Global (JCOM) slid -10.27%, mostly in the first half of July. The company is primarily an older technology company (fax to email) but also owns second tier media properties, all facing disruptive competitors. We closed the position. EPR Properties (EPR) eased -13.58%. This REIT owns leisure properties, including cinemas. The company is overlevered, suffering from Covid-induced lockdowns and secular headwinds.
The largest realized and unrealized losses for July were L Brands, Inc. (LB) , Jack in the Box Inc. (JACK) and Credit Acceptance Corporation (CACC). L Brands (LB) spiked 63.06% towards the end of July on the announcement of massive cost cuts and a restructuring plan after their sale of Victoria’s Secret fell apart in March. Jack in the Box (JACK) gained 10.82%. Sales growth and margins have collapsed on the decline in consumer spending, ye the stock continues to get increasingly expensive. We closed the position. Credit Acceptance Corporation (CACC) rose 11.68%. The company remains overexposed to subprime lending and faces deteriorating credit quality. We closed the position on the market’s and stock’s momentum.
|Ticker||Security Description||Portfolio Weight %|
|LB||L BRANDS INC||-2.96%|
|MSI||MOTOROLA SOLUTIONS INC||-2.48%|
|CAJ||CANON INC-SPONS ADR||-2.22%|
|IBM||INTL BUSINESS MACHINES CORP||-2.18%|
|CPT||CAMDEN PROPERTY TRUST||-1.93%|
|FL||FOOT LOCKER INC||-1.91%|
|SC||SANTANDER CONSUMER USA HOLDI||-1.90%|
|MO||ALTRIA GROUP INC||-1.78%|
As of 7.31.2020. Cash not included.
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