HDGE: 2nd Quarter 2021 Portfolio Manager Review
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For the second quarter of 2021, the AdvisorShares Ranger Equity Bear ETF (NYSE Arca: HDGE) lost -9.20% (NAV) while the S&P 500 Index gained 8.55%.
The market remains very expensive and technically stretched against a backdrop of unalloyed investor bullishness in our opinion. Morgan Stanley’s Composite Market Timing Indicator has reached levels rarely seen before. Specifically, it has reached current levels only five times over the past 30 years. According to Morgan Stanley, “Each of our five market timing indicators is giving a sell signal at the same time.”
Coincident with Morgan Stanley’s indicators, bullish sentiment has stretched to unprecedented levels. This is a contrary indicator. SentimentTrader (chart below) shows us that household equity ownership as a proportion of total financial assets has reached 36.5%. That is higher than the 32.5% level reached around the time of the internet bubble in 2000 and the 29.7% mark reached during the growth stock boom of the late 1960’s. We note that equity market returns, after reaching these peaks in the past, resulted in weak to negative equity returns.
In this environment, we continue to believe that individual stock-picking and hedged exposure will help manage risk better than index buy-and-hold investing.
Internal to the markets, investors have embraced speculative young companies and are pursuing high momentum stocks again. The rising values of unprofitable companies, be they pre-profitability technology or biotech companies, indicates that investors are very wiling to embrace risk. In potentially dangerous environments like today’s, investors tend to abandon caution and pursue even poor business models in the hope that a “greater fool” buys them out of mistakes.
Momentum stocks are a similar indicator of investor complacency. After a lull in the pursuit of momentum stocks early in the year, the most recent quarter shows us that investor fear of missing out on the next great trend is overwhelming the prudence that might make them abandon lower quality ventures.
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 second quarter of 2021, the largest realized and unrealized gains were Tupperware Brands Corporation (TUP), eHealth, Inc. (EHTH), Louisiana-Pacific Corporation (LPX)and Mercury Systems, Inc. (MRCY). Tupperware Brands (TUP) slid during June, ending the quarter down -10.07%. Wall Street earnings estimates were cut, more than offsetting better news about debt reduction and a surprise stock buyback announcement by this well-known household plastic container company. eHealth (EHTH) fell effectively the entire quarter, ending down -19.70%. eHealth is a private health insurance exchange. The company has been plagued with high churn rates in the customer base and the associated agent commission impact on earnings quality. The company added an activist-sponsored new board member in May. Louisiana-Pacific (LPX) has fallen from an early May peak, yet finished the quarter higher at 8.71%. This construction products company had seen its stock rise since late 2020 on building related to a flight from cities. Lumber prices had spiked on supply chain constraints and robust homebuilding activity. However, the price trend appears to have gone too far, leading lumber prices to drop by more than half from May peaks. LPX stock fell in sympathy.
The largest realized and unrealized losses for the second quarter were BigCommerce Holdings Inc (BIGC), Stitch Fix, Inc. Class A (SFIX) and Fastly, Inc. Class A (FSLY). BigCommerce (BIGC) stock dithered all quarter but rose towards the end, finishing 12.32% higher. Analysts had reduced their target price forecasts for this ecommerce platform company. The reductions were based on disappointing earnings guidance that showed increasing losses for the company. Stitch Fix (SFIX) had a strong May, ending the quarter up 21.72%. It is a clothing ecommerce company. The stock beat expectations and rose on the news, although the stock drifted back down in June. Fastly (FSLY) overcame a May drop to end the quarter down just -11.41%. This edge cloud security software company disappointed investors with a weak growth forecast. The disappointment happened against a backdrop of fading confidence in profitless growth stocks. In June, however, several high-profile security breaches led investors to favor security software stocks and FSLY partly recovered.
|Ticker||Security Description||Portfolio Weight %|
|GRUB||JUST EAT TAKEAWAY-SPONS ADR||-3.50%|
|APPF||APPFOLIO INC – A||-3.48%|
|PCG||P G & E CORP||-3.01%|
|WH||WYNDHAM HOTELS & RESORTS INC||-2.85%|
|BEKE||KE HOLDINGS INC-ADR||-2.82%|
|MKTX||MARKETAXESS HOLDINGS INC||-2.75%|
|MKC||MCCORMICK & CO-NON VTG SHRS||-2.62%|
|FSLY||FASTLY INC – CLASS A||-2.35%|
As of 06.30.2021. Cash not included.
Ranger Alternative Management
AdvisorShares Ranger Equity Bear ETF (HDGE) Portfolio Manager
Past Manager Commentary