HDGE: June 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 June, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost 6.91% while the S&P 500 gained 1.99%.
|Performance History (06.30.2020)||HDGE NAV (%)||HDGE Market (%)|
As stated in the Prospectus, the total annual operating expenses are 3.12% (includes 0.18% acquired fund fees). 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 month-end performance please visit www.advisorshares.com/etfs/hdge.
The Q Ratio Indicates that the Stock Market Value Is Historically Overpriced
We use many indicators to analyze stock market value and future trends. One of our favorites is the Q Ratio. It was developed by Nobel Laureate James Tobin to estimate the fair market value of the stock market for the long term. The ratio is the total price of the market divided by the replacement cost of the physical assets of all of its component companies. As you can see from the chart below, the ratio sits at a quite high level of 1.79. This means the market is trading at 129% above the mean historic replacement cost ratio of 0.79, says Jill Mislinski of Advisor Perspectives. Note that the all-time Q Ratio high at the peak of the Tech Bubble was 2.17, about 180% above the historic average of replacement cost. The all-time lows in 1921, 1932 and 1982 were around 0.28, which is approximately 63% below replacement cost. Mislinski cautions this is not a short-term indicator. “Periods of over- and under-valuation can last for many years at a time,” she says. That means the Q Ratio is “ more appropriate for formulating expectations for long-term market performance”. The Q Ratio, among other indicators, tells us to be cautious at these market level.
It should not be surprising, then, that equity investors are once again becoming complacent. While stocks of companies with high sales growth were strong in June, investors did not care whether the growth was profitable growth. This indicates that their “risk-on” preference has manifested itself in a low-quality rally.
Investors did not care if the stocks they were buying were profitable or not. In fact, unprofitable company stocks out-gained profitable company stocks by 270bps last month. Much of the rally was focused on cyclical stocks, also suggesting pro-bullish sentiment.
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 June 2020, the largest realized and unrealized gains were Cinemark Holdings, Inc. (CNK), Capri Holdings Limited (CPRI), Golar LNG Limited (GLNG) and Weibo Corp Sponsored ADR Class A (WB). Cinemark Holdings (CNK) stock sank -23.15%. This motion picture exhibition company is suffering deeply from the Covid-19 crisis. Even before Covid, they were losing business to streaming services. It is unlikely that they can ever recover to prior volumes. In addition, the movie pipeline is weak for the next one to two years. Capri Holdings (CPRI) stock bounced 3.92%. This luxury fashion group saw sales decline 11.3% and margins drop 500 basis points in the fourth quarter. Guidance is poor and estimates are declining as the company’s brands lose traction. Golar LNG (GLNG) stock eased -8.70%. The natural gas shipping company saw an increase in revenues in the first quarter, partly from seasonal rises in shipping and the introduction of its latest FLNG unit. Analysts are cutting their estimates. Weibo Corp (WB) stock rose 9.20%. The company had become embroiled in the conflict between India and China. We covered the short.
The largest realized and unrealized losses for June were Credit Acceptance Corporation (CACC), Dycom Industries, Inc. (DY) and Genuine Parts Company (GPC). Credit Acceptance Corp (CACC) stock rose 13.30%. New loan originations are slowing and the credit quality is deteriorating. Last quarter brought a much higher provision for loan losses than the prior year. Dycom Industries (DY) stock tumbled -2.87%. The engineering and specialty contracting services company pulled its guidance after earnings fell 32% from the prior year. Dycom is having problems with a large customer program and another problem at a specific customer rollout. Genuine Parts Co (GPC) stock lifted 4.26%. The company’s sales and earnings declined dramatically from last year and missed consensus estimates. We covered the short.
|Ticker||Security Description||Portfolio Weight %|
|HSBC||HSBC HOLDINGS PLC-SPONS ADR||-2.88%|
|MSI||MOTOROLA SOLUTIONS INC||-2.59%|
|WFC||WELLS FARGO & CO||-2.37%|
|CPT||CAMDEN PROPERTY TRUST||-2.25%|
|CAJ||CANON INC-SPONS ADR||-2.25%|
|QSR||RESTAURANT BRANDS INTERN||-2.19%|
|FL||FOOT LOCKER INC||-1.98%|
|LB||L BRANDS INC||-1.89%|
As of 06.30.2020. Cash not included.
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager
Past Manager Commentary