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.

Performance

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%.

Markets Review

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.

 

Portfolio Review

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.    

Top Holdings

Ticker Security Description Portfolio Weight %
LB L BRANDS INC -2.96%
SNA SNAP-ON INC -2.59%
T AT&T INC -2.54%
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.

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.